Public sector commercial banks needlessly wear the deposit insurance cross and this should be stopped, the Bank Employees Association of India (AIBEA) said.
He said there are valid arguments for reducing the premium on deposit insurance as the claims experience is very good and the premium should only be charged on the amount of insurance coverage and not on the amount. total deposits.
Alternatively, the government may consider insuring loans made by banks so that loan cancellations, bad debt provisions can be avoided, he added.
In a letter to Minister of Finance Nirmala Sitharaman, the Secretary General of AIBEA CHVenkatachalam said that for the calculation of the premium the entire deposit is taken into account but the coverage is only 100,000 rupees per account. deposit. The government proposes to increase the amount of coverage to 500,000 rupees.
“So banks pay premiums even for deposits that are uninsured,” Venkatachalam said.
According to him, in the year 2019-2020, the total premium paid by banks was 13,230 crore rupees (commercial banks 12,310 crore rupees, cooperative banks 920 crore rupees) to the insurance company -Deposits and Credit Guarantee (DICGC).
Of this amount, claims paid by DICGC amounted to Rs 80.65 crore to depositors of cooperative banks and claims in the case of commercial banks were nil.
According to him, the deposit insurance fund currently stands at Rs 110,380 crore and the total claims paid since its inception is only Rs 5,200 crore.
“The claims experience is very good and therefore the premium rates should be reduced from the current 0.12 paise per 100 rupees instead of increasing in the same way as the government is proposing,” said Venkatachalam at IANS.
Venkatachalam said total public sector bank deposits are around Rs 77 lakh crore of which only 30 percent or Rs 23 lakh crore is covered by insurance for Rs 1 lakh till date (56 percent or Rs 44 lakh crore deposits after the coverage amount is increased to Rs 5 lakh).
Citing section 45 of the Banking Regulation Act 1947, Venkatachalam said that the government and the Reserve Bank of India (RBI) have the power, in the public interest, to merge any bank with another. bank and thus avoid bank closures and the resulting loss of deposits. client.
“This is why, while hundreds of banks were closed before 1960, with this amendment to the Banking Regulation Act, not a single commercial bank has been liquidated or closed,” Venkatachalam said.
Out of 2,067 banks covered by the DICGC, 1,923 banks are cooperative banks. Only these banks face closure and liquidation issues and the deposits of these banks need to be covered by the DICGC, he said.
According to him, cooperative banks could also be covered by Article 45 of the Law on Banking Regulation.
“Even in the case of these banks, only to the extent of deposits covered by insurance coverage, the premium should be charged and not on the total assessable deposits which is much higher,” added Venkatachalam.
The AIBEA leader urged Sitharaman to exempt the public sector / commercial banks from deposit insurance and the cooperative banks’ premium should be charged on the insurance coverage provided and not on their entire base. deposits.
According to the premiums and claims figures provided by Venkatachalam, there are valid arguments for the DICGC to lower its premium rate rather than increase it.
Venkatachalam stated that the premium payable for deposit insurance was 0.05 paise per Rs. 100 per year and in 1971 it was revised to 0.04 paise, increased to 0.05 paise in 1963, 0, 08 paise in 2004 and 0.10 paise in 2005. It is now 0.12 paise per Rs. 100 as of 1.4.2020.
He also questioned the silence of commercial banks on the payment of deposit insurance premiums that are not needed.
Citing huge bad debts and loan cancellations by government banks, Venkatachalam said there may be insurance for bank loans / non-performing assets instead of deposits.