RBI's subsidiary DICGC to revamp 50-year-old deposit insurance scheme

The Deposit Insurance and Credit Guarantee Corporation (DICGC) — a subsidiary of the Reserve Bank of India — is to revamp the country’s 50-year-old deposit insurance scheme by the end of this year.

“The DICGC board has kick-started the process and will submit its report to the finance ministry. It will be taken up at the next central bank board meeting as and when it is scheduled. Hopefully, it (the DICGC report) should be ready by then,” said a top-level source. He said the DICGC’s board is currently looking at “datasets, and has asked for more time to finalise its report”.

When specifically asked if the central bank had mandated the DICGC to go ahead with the revamp, it was clarified that the “deposit insurer is well aware of what needs to be done, given the urgency in the aftermath of what has unravelled at the Punjab & Maharashtra Co-operative Bank”.

The DICGC, said the source, will examine the feasibility of a shift from the current flat-premium model of 10 paise for every Rs 100 of deposits held by banks to the insurer”.

Under the revised scheme — if it is accepted by the finance ministry and central bank board — there will be two categories of depositors: Personal and institutional. The former will cover retail and small businesses; the latter will take care of large corporate depositors, trusts, and government agencies.

The payout in the case of liquidation of the bank, which is now capped at Rs 1 lakh for every account holder, will also be increased, and be different for the two categories envisaged. Banks will also get the option to pay a higher premium to insure a larger deposit amount — in excess of Rs 1 lakh. “The tax exemption bracket has moved up over the years to Rs 5 lakh per annum. This revised upper limit should look at this and the inflation index when they arrive at the new ceiling,” said the source.

The revised framework is expected to take a cue from the Jagdish Capoor Committee on Reforms in Deposit Insurance in India (1999), the Committee on Credit Risk Model (2006) constituted by the DICGC which had recommended the introduction of risk-based premium for banks, and urban co-operative banks. In 2015, a central bank committee under the chairmanship of Jasbir Singh (Committee on Differential Premium System for Banks) also made a similar suggestion.

Deposit insurance was last revised on May 1, 1993, after the collapse of the Bank of Karad, in the wake of the securities scandal of 1991. There was little forward movement on this front as co-operative banks and regional rural banks were under ‘perpetual restructuring’ for a long time; and so too, the absence of a robust supervisory rating for all insured banks, especially co-operative banks.