The Reserve Bank of India (#RBI) has mooted risk-based premium collection for deposits guaranteed by the Deposit #Insurance and Credit Guarantee Corporation (DICGC). This could mean that banks with larger bad loans or higher equity exposures or unsecured loans would have to pay higher premia for their deposits to be insured by the DICGC.
Deposit insurance extended by DICGC, a wholly owned subsidiary of the RBI, covers all banks including commercial banks, regional rural banks (RRBs) and cooperative banks in the country. The current limit of deposit insurance is Rs 1 lakh per depositor in the same right and same capacity. As on March 31, 2015, about 92.3% of the accounts were fully protected.
Amount-wise, insured deposits at Rs 26.1 lakh crore constituted nearly 31% of the assessable deposits. An effective deposit insurance design should be capable of managing its risk by seeking compensation for the risks being transferred to it. “Hence, risk-based collection of premium could be an important step in this direction,” RBI said in its annual report.
Two senior bankers dna spoke to said the RBI needs to clarify how it will classify risk and how the banks will be considered risky. “While they say risk can be classified as large amount of bad loans, large equity exposure, unsecured lending, we are awaiting for more clarification from the regulator,” one of the bankers said. The size of the Deposit Insurance Fund (DIF) stood at Rs 50,450 crore as at the end of March 2015, yielding a reserve ratio, that is DIF/insured deposits, of 1.9%.
Arun Tiwary, chairman and managing director, Union Bank of India, told dna, “RBI does a rating of banks based on their performance, based on CAMELs, which is capital adequacy, asset quality, management, earnings, liquidity and system and control. If banks turn out risky on the CAMELs rating perhaps their premiums could be higher.”