Page 57 - Banking Finance October 2024

FEATURES

India's deposit insurer might be

overcharging commercial banks

T he Deposit Insurance and Credit Guarantee crore, Rs. 20,104 came from commercial banks and Rs.

Corporation (DICGC), a unit of the Reserve
1,277 crore from cooperative banks.
Bank of India (RBI), insures deposits across the
However, the claims profile is reverse, with cooperative
banking system. As of March 2023, it insured
banks requiring 98%-plus of the total claims to date.
2,026 banks. In 2022-23, it collected gross premiums
Since 1962, gross claims of Rs. 295.85 crore have been
of Rs. 21,381 crore, with investment income at Rs.
filed towards 27 commercial banks. Against cumulative
11,908 crore, and revenue surplus after tax at Rs. 24,559
recoveries of Rs. 157.54 crore, the net claims for
crore. As an insurance company, it has an actuarial
commercial banks total Rs. 138.31 crore. On the other
valuation for liability as of 31 March 2023 at Rs. 12,174
hand, Rs. 14,735.25 crore have been filed in gross
crore, but surplus collection to date beyond actuarial
claims towards 410 cooperative banks. Against
liability totalled Rs. 1,57,427 crore. The total funds
cumulative recoveries of Rs. 4,602.26 crore, the net
available with the Deposit Insurance Fund are Rs.
claims for cooperative banks stood at 10,133 crore.
1,69,602 crore, or 2.02% of the total insured amount.
DICGC collects 94% of premiums from commercial
With these impressive surpluses, the key issue to be
banks, which account for a mere 1.3% of net claims.
examined is whether DICGC is overcharging banks for
Cooperative banks contribute only 6% of premiums but
premiums to collect a surplus? Can the premiums be
claim 98.7% of the net claims.
reduced and based on the risk profiles of the insured
bank, which will reduce the overall costs of compliance The skew of premiums to net claims totally distorts the
in the banking system? Commercial banks have lower sector because well managed banks are being made to
risk profiles: Insurance premiums rose from 5p per Rs. pay for the huge defaults prevalent in cooperative banks.
100 insured in 1962-when DICGC was set up-to 10p in It imposes high costs on good management, contrary to
2005 and 12p in 2020. Insurance coverage was capped the risk evaluation theory of insurance.
at Rs. 1,500 in 1962, which increased to Rs. 1,00,000
in 1993 and Rs. 5,00,000 in 2020. DICGC collects Reevaluation of premiums: DICGC does not need to carry
insurance premiums at 12p per Rs. 100 insured for all these big surpluses on its balance sheet. It invests them
deposits up to Rs. 5 lakh per person. This premium is in government securities, which are stable investments.
uniformly applied, irrespective of whether the bank is Additionally, as a wholly owned subsidiary of RBI, it has
commercial or cooperative, despite the differing risk in-principle access to liquidity support from RBI in case
profiles and management structures. of need.

Of the 2,026 insured banks, 139 are commercial and In 2022-23, revenue surpluses after tax totalled Rs.
1,887 cooperative banks. Insured deposits totalled Rs. 24,559 crores. It is safe to assume that there will be a
83,89,470 crore, of which Rs. 77,00,667 crore were surplus of at least Rs. 26,000 crore in 2023-24 and
deposited with the commercial banks and the rest Rs. another Rs. 30,000 crore in 2024-25. Adding these will
6,88,803 crore with the cooperative banks. Accordingly, take the fund surplus to Rs. 2,13,427 crore plus the
of the total premiums collected in 2022-23 of Rs. 21,381 actuarial valuation, which will be close to the oversized

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