Deposit insurance cover hike may dent banks' net profit up to Rs 12K cr

Rating agency ICRA today said that any hike in the deposit insurance limit may dent the net profit of banks by up to Rs 12,000 crore annually. This works out to a moderation in return on assets (RoA) of up to four basis points (bps) and return on equity (RoE) of up to 40 bps.

 

Additionally, if the insurance premium is increased, the cumulative impact on RoA and RoE will be up to seven bps and 68 bps, respectively, ICRA said in a statement today.

 

While the proposed increase in the deposit insurance limit is not known, under various scenarios, the insured deposit ratio (IDR) may increase to 47.0-66.5 per cent. The coverage of deposits, expressed as IDR, is the ratio of insured deposits to assessable deposits. It was 43.1 per cent as on March 31, 2024 (44.4 per cent as on March 31, 2023).

 

In February 2020, the Deposit Insurance and Credit Guarantee Corporation (DICGC) had raised the deposit insurance limit from Rs 1 lakh to Rs 5 lakh per depositor per institution. This has come under focus, given the recent failure of a cooperative bank. In addition, the insurance premium may be raised to Rs 0.15 (from Rs 0.12) per Rs 100 of deposit. This would be done with the prior approval of the Reserve Bank of India (RBI) to help the DICGC shore up its Deposit Insurance Fund (DIF).

 

As on March 31, 2024, 97.8 per cent of the total number of eligible/assessable accounts were fully covered. The remaining 2.2 per cent of the accounts were partially covered up to the coverage limit of Rs 5 lakh, the rating agency added.