Deposit insurance premium to be flat
I NO TO RISK-BASED PREMIUM Finance Secretary Rajiv Kumar says it’s not the right time to put differential premium on banks
The premiums charged to banks to cover deposit insurance of customers may rise to 12-13 paise per deposit of ~100 every year, Finance Secretary Rajiv Kumar said on Sunday, asserting the government is not in favour of a risk-based premium regime.
“Banks cannot pass on the hike in premiums to its customers, according to the norms. The premium won’t go up substantially in any case and may be hiked to 12-13 paise (per deposit of ~100 a year),” Kumar said in a media interaction.
The premium payable by any insured bank cannot exceed 15 paise per annum for every ~100, according to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act.
Bank deposits up to ~1 lakh of each customer are insured by DICGC, which is a wholly-owned subsidiary of the Reserve Bank of India (RBI) and guarantees depositors’ money. Finance Minister Nirmala Sitharaman had announced hiking the deposit insurance limit to ~5 lakh for each bank depositor.
“This is not the right stage to put a differential premium on banks. If that happens then the weaker bank will have to pay more and it will in a way disclose that it is not safe. We do not want to put the depositors at risk at any stage. The current system of premium will continue,” the finance secretary said.
Last year, the RBI had asked DICGC to explore a risk-based system for collecting premiums from banks to cover the deposit insurance of customers. In other words, banks be charged a premium depending upon their risk profile as against a flat rate, which is done now. Official data showed, between 2009-10 and 201819, only one of the 429 claims pertained to a commercial bank and the rest were meant for co-operative banks.
The finance secretary said the government would bring in regulatory capital and management norms for the co-operative banks in the next fiscal year. Sitharaman had announced in the Budget that the Banking Regulation Act would be amended to strengthen co-operative banks for increasing their professionalism, enabling access to capital, and improv
Finance minister had announced hiking the deposit insurance limit to ~5 lakh for each bank depositor
ing governance and oversight for sound banking through the RBI.
“For the first time, co-operative banks will be required to maintain minimum level of capital, as is in the case of other commercial banks. We will introduce governance norms in a
way that there is no conflict of interest on the board of such banks,” Kumar said.
He, however, hinted the minimum capital requirement for co-operative banks might not be similar to other commercial banks and a differentiated regulatory regime may be followed.
For governance reforms in public sector banks, the government is considering to offer employee stock ownership plans. The finance ministry has been working on this for at least two years now.