The Deposit Insurance Act 1961 came into force from 1st January 1962. Though the name still continues to be ‘Deposit Insurance and Credit Guarantee Corporation,’ the Credit Guarantee scheme was discontinued in 2003.
The Deposit Insurance does not cover Non-Banking Finance Companies and Nidhis even now. The insurance cover increased over a period of time as the value of Rupee went down.
Level of Deposit Insurance Coverage: The insurance limit was enhanced from time to time as follows:
Effective From Insurance limit
1 Jan 1962 Rs.1500/-
1 Jan 1968 Rs. 5000/-
1 April 1970 Rs. 10000/-
1 Jan 1976 Rs. 20000/-
1 July 1980 Rs. 30000/-
1 May 1993 Rs. 100000/-
4th Feb 2020 Rs. 500000/-
The Insurance premium, which was 0.05 for every 100 rupee, went to 0.10 in 2005 and from 1st April 2020 it was increased to 0.12. In the amended Act it is increased to 0.15 with a provision that RBI can increase it from time to time.
There is no rationale for increasing the premium if you look at the following details.
As on 31st March 2020 the accumulated surpluses/reserves (post tax) stood at Rs.993.6 billion. Income Tax paid last year alone was Rs. 51.84 billion, while the GST was Rs.21.8 billion. The income tax paid in the last five years is Rs.304.32 billion and reserves and surpluses accumulated in the last five years is 530.51 billion.
Net claim last year (2019-20) was only 0.54 billions. Public Sector Banks have not staked any claim. Commercial banks paid a premium of Rs.123.1 billion during the year 2019-20 and claimed just 5.69%. It is only the co-operative banks which claim insurance, as some of them fail due to mismanagement. The AIBEA has, already, demanded that Public Sector Banks should come out of DICGC as they pay huge premium but claim nothing as there are no bank collapses. Only Co-operative banks have collapsed and claimed insurance.
Even after raising the claims to Rs. 5 lakh out of deposits of Rs.134889 billion, only Rs.68715 billion is covered under insurance. So 49.1% of the deposits are not protected even now.
Hence, this appears to be a dubious scheme to get tax and dividend to the Govt and not really help the customers.
The Finance Minister says the claims will now be settled in 90 days. Even before the amendment to the Act, provisions were there to release the claim within 60 days, which is now reduced to 45 days. But practically, it took an of average 508 days to get the claims. Just because the Act is changed, the claim settlement may not take place at that speed. Let’s wait and see what happens to PMC Bank customers.
India provides the least insurance cover on deposits among 146 countries. Let’s have a look at the insurance cover provided by a few countries. The figures are in Dollar/Euros
So the USA provides insurance cover of Rs.18535537 (1.87 Cr), Malaysia Rs.4434183 (44.3 Lakhs) but India provides an insurance cover of just Rs.5 lakhs. There is a huge gap.
What to do? Don’t keep more than Rs.5 lakhs in one bank. Shift the rest to other banks. Public Sector Banks are safer. You can keep more. They don’t fail. But privatisation will end that too.
Time to wake up.
Thomas Franco is the former General Secretary of All India Bank Officers’ Confederation.
Picture courtesy: Paul Noronha/Twitter
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