Page 47 - Banking Finance August 2017

ARTICLE

Y The proportion of premium paid by the Commercial However it is equally pertinent to note that over the years,
Banks/RRB/LABs to the corporation has been 93% with the increasing deposits levels of the banks, the premium
whereas the claim received since inception has been income of the corporation has been increasing and has been
mere 295 crores (6 % ) approx that too in gross terms. even triplicate to what it should have been if calculated

Y The proportion of premium paid by the Cooperative Banks logically to the insured level of deposits rather than the total
to the corporation has been 7% whereas the claim received assessable levels of deposits as is being done over the years.
since inception has been 94% approx in gross terms.
The increasing income that the corporation receives and
Y The rate of premium has been uniform across all types relatively lesser claims being paid, has been resulting in huge
of banks, be it SBI group, RRBs or Cooperative Banks surplus funds with the corporation which it has been able
and within a type also, say Public Sector Banks, for all to invest and again earn handsomely-something with which
Banks, PNB, BOB, BOI etc or Uco, United Bank of In- DICGC would not have been conceived with.
dia, Dena bank etc. There is no consideration to the
The trend as reflected from the financials of the corpora-
qualitative aspects, geographical spread etc of differ-
tion clearly provides the ground to re-assess the need of
ent banks which have its own importance and relevance
DICGC, in its present form and with existing norms. Even
in the business profiles of the banks and their likely
with the implementation of Basle accord and the risk as-
chances of defaults for claims.
sessment & mitigant measures being adopted by the banks
Y For the delayed payment of premium, the Corporation in India, chances of bank’s failure become even more remote
levies penal interest of 8 % over the Bank rate which and that too, to the level where the DICGC has to step in
works out to be approx 16% PA.
with the insurance amount, save for some poorly managed
cooperative banks that pose a little challenge.
Conclusion:
Further more, for the nationalized banks which have more
The concept and establishment of DICGC has been quite
than 50% stake of the government, chances of such banks
holistic and there has been a sense of confidence among
going into liquidation without repaying its depositors’ are
depositors about the safety of their hard earned monies with
unthinkable and hence such banks certainly do not account
their banks, at least to the extent they can survive with in
the event of bank fails or amalgamated and not been able for the DICGC coverage and that too for full premium
equivalent to other non nationalised banks.
to repay. However through the study of the figures that have
been published in the corporation’s latest annual report of As far as the interest of depositors is concerned and the
March 2016, it is observed that over the years, the claims premiums to the corporation have to be maintained, it may
have been declining, probably more due to the stringent su- be logical to state on one hand that the corporation itself
pervisory guidelines and controls of the regulator i.e Reserve has sufficient funds at its disposal to honour such liabilities
Bank of India as well as the increasing awareness level while on the other hand, Reserve Bank of India itself has
among general public, customers etc. been flushed with huge funds and so may provide necessary
financial support to the corporation-its fully owned subsid-
iary. For, in present highly challenging times, wherein the
banks have been struggling hard to save their bottom lines
that already are into red, the monies that could be saved
through the premiums they have been constrained to pay
for no return, could bring a great respite.

It is therefore suggested that the Banks specially the com-
mercial banks should be exempted from the premium pay-
ments to the corporation or at least should be allowed to
suspend the payments for few years till they are able to
normalize their financial positions. T

BANKING FINANCE | AUGUST | 2017 | 47

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