At a time when there are reports that the government is mulling increasing insurance cover of bank deposits from the current Rs 1 lakh, the All India Bank Employees' Association (AIBEA) has submitted to the government that public sector banks and commercial banks be exempted from the deposit insurance cover.
In a letter to Finance Minister Nirmala Sitharaman on Monday, the General Secretary of AIBEA also said that for co-operative banks, the premium should be charged only on the deposit amount insured and not on the total assessable deposits of the bank.
As per the Section 45 of Banking Regulations Act, 1947, the government and the Reserve Bank of India (RBI) have the powers, in public interest, to amalgamate any bank with another bank. This ensures that a bank doesn’t close down, and depositors don’t lose money.
“That is why, while hundreds of Banks were getting closed prior to 1960, with this amendment to Banking Regulations Act, not a single commercial Bank has been liquidated or closed. Further, with the nationalisation of major Banks in 1969 and 1980, the public sector banks also enjoy the sovereign guarantee of the Government. Hence there is no question or possibility or eventuality of any commercial Bank getting closed down or liquidated in view of the above provisions under Banking Regulations Act,” CH Venkatachalam, General secretary wrote in the letter.
It is in this backdrop that the AIBEA feels that deposits of public sector banks need not be covered by the Deposit Insurance Scheme.
AIBEA also argues that there is a major gap between the premium paid and the insurance cover. It says that while premium is charged on the entire deposits, the scheme covers insurance only up to Rs 1 lakh, which means that banks are paying premium even for deposits that are not insured.
Commercial banks paid a premium of Rs 11,190 crore during 2018-19 and Rs 10,350 crore the previous year to Deposit Insurance and Credit Guarantee Corporation (DICGC) with zero claims.
Venkatachalam said the total amount of deposits under 200 crore bank accounts were Rs 120 lakh crore whereas the deposit insurance cover is only for Rs 33.70 lakh crore or 28%.
In the case of public sector banks, the total deposit is about Rs 70 lakh crore and the insurance cover is only for Rs 28 lakh crore or 30% of the total deposits.
Venkatachalam said, as on 31-3-2019, the Deposit Insurance Fund of DICGC is Rs 97,350 crore including a surplus of Rs 87,890 crore. The claims settled so far since 1962 is only Rs. 5,120 crores and that too for the cooperative banks.
"Out of 2,098 banks covered by the DICGC, 1941 banks are co-operative banks. Only these banks are facing problems of closure and liquidation and the deposits of these banks need to be covered by DICGC. Even in the case of these banks, only to extent of deposits covered by the insurance cover, premium should be charged and not on the total assessable deposits which is much higher," Venkatachalam wrote in the letter to the Finance Minister.