Page 57 - Banking Finance November 2024

FEATURES

lighter regulations and carry higher risk creates unique risk measures and thus price risk on a more granular basis;
challenges in deposit insurance. Of the 1997 banks registered the share was just 30 per cent in 2010.
with the DICGC towards the end of March 2024, there were
just 140 commercial banks but 1,857 cooperative banks. Other Issues
The time taken by the DICGC to settle claims can also be
And failures have been more among cooperative banks in shortened to meet global standards. The IADI recommends
recent years. The RBI has cancelled the licences of 78 urban reimbursement of the claims of most depositors within seven
cooperative banks since 2014; 10 of these licences were working days. Around 70 per cent of European deposit
cancelled in 2024. Since inception, Rs. 295.9 crore has been insurers and 40 per cent of their Asian counterparts
paid towards insurance claims of 27 commercial banks. In commence payouts within seven days.
contrast, around Rs. 16,000 crore has been paid to settle the
claims of depositors of urban cooperative banks. This timeline mandated for DICGC is, however, quite
generous. The Corporation must pay depositors of the banks
But despite the higher risk in cooperative banks, the insurance placed under All Inclusive Direction (AID) within 90 days
premium charged to them is the same as other commercial from the date of imposition of AID. In case any scheme of
banks - 12 paisa on every Rs. 100 of assessable deposits. amalgamation or other scheme, this period could be extended
There is a strong case for charging premium based on risks by 90 days.
in the business.
These timelines may have been set keeping in mind the lower
This will address the moral hazard in charging a flat premium. technology adoption by cooperative banks. But depositors
It will call for an assessment of the risks in banks' books based should not be penalised for the bank's tardiness in digital
on granular data on their credit book, governance practices, adoption. Finally, the DICGC needs to review the coverage
capital adequacy and asset quality. limit per depositor at 5-year intervals to account for inflation
and growing bank deposits. The share of insured deposits to
According to the IADI, approximately half of deposit insurers total deposits has already moved down from 50.9 per cent in
globally levy diªerential premiums which consider additional 2020 to 43.1 per cent now. (Source: Business Line)

Bank not liable for lack of pledged goods cover

Shree Shakti Foam had applied to Canara Bank for a cash credit facility against the hypothecation of stocks. The
bank ascertained the stock summary and physically tallied it with the goods in the godown before sanctioning the
facility. The bank also arranged for insuring the godown and stock. An amount of Rs 13,771 was recovered from the
customer's account towards the premium for the policy. On the night of October 20, 2017, a fire occurred, due to
which goods were burnt. The police as well as the bank were intimated. It was then realised that there was no valid
insurance coverage as the previous policy had expired.
Alleging deficiency in service, the customer filed a complaint before the Uttar Pradesh State Commission. The com-
plaint alleged that the bank had not even told the customer the insurer's name through whom the policy was taken.
Upon inquiry, it was learnt that the previous policy with a coverage of Rs. 25 lakh was obtained from National Insur-
ance Company, and its validity period was from July 12, 2016, to July 11, 2017. The customer faulted the bank for
this lapse because the policy had not been renewed.
The customer argued that it was the duty of the bank to get the policy renewed in time to maintain continuity of
coverage, but since this was not done, there was no insurance to cover the loss. Therefore, the bank should be held
liable to bear the loss amounting to Rs. 39,19,527.52. Additionally, interest, compensation, and costs were also
claimed in the complaint. The bank contested the case, denying the allegations made against it. It stated that it was
the duty of the customer to get the stock insured or request the bank to get the policy renewed. Since this was not
done, the bank claimed that there was no lapse on its part.

50 | 2024 | NOVEMBER | BANKING FINANCE