An RBI panel report today suggested introduction of differential premium system for banks under which lenders with higher risk have to pay bigger premium to insure deposit of customers.
Deposit Insurance and Credit Guarantee Corporation (DICGC) provides deposit insurance cover at a flat rate of Rs 1,00,000.
Under DICGC insurance norms, a maximum of Rs 1 lakh is paid to a depositor in case of failure of banks to repay the deposit.
A committee headed by DICGC executive director Jasbir Singh recommended that the differential premium based on risk assessment should be introduced to avoid cross-subsidisation.
It further said that the number of categories for assigning premium rates should be limited to four or five.
In India, specified deposits of commercial banks, Regional Rural Banks (RRBS), Local Area Banks (LABs) and cooperative banks are covered under deposit insurance by the DICGC. The premium is being charged at a flat rate of 10 paisa per Rs 100 per annum.
The primary objective of most Differential Premium Systems (DPS) has been to provide incentives to banks to avoid excessive risk taking, minimise moral hazard and introduce more fairness into the premium assessment process, the panel said in its report.
"Introducing fairness into the system bolsters industry support for deposit insurance. Keeping this perspective in mind, there has been an increasing recognition among the deposit insurance agencies around the world about the need for introduction of a DPS based on the risk profile of banks," it said.
The report said that the DICGC should also utilise the supplementary information available from sources easily accessible, to upgrade its market intelligence about general wellbeing of the member banks and also to use this information to validate the Corporation's assessment of banks.
"For example, the peer reviews on commercial banks and scheduled UCBs being prepared by regulatory/supervisory departments would provide a good indication about banks' current state and the likely path of future," it said.
The Committee also suggested obtaining appropriate inputs from NABARD in respect of RRBs, State and District Central Cooperative Banks, it added.
