Dicgc To Hive Off Credit Guarantee Business

The Small Industries Development Bank of India (SIDBI), a subsidiary of the Industrial Development Bank of India (IDBI), will take over the credit guarantee functions after forming a corpus of Rs 125 crore with a contribution from the government.

This was stated by Jagdish Capoor, deputy governor, Reserve Bank of India (RBI) at the "Seminar on Deposit Insurance Reforms in India" at the National Institute of Bank Management (NIBM), Pune, on Saturday.

Only seven banks are currently covered by the credit guarantee scheme, of which six banks are cooperative banks, while one is a regional rural bank (RRB). All public sector banks have have opted out the credit guarantee scheme over the last few years.

 

"The RBI should maintain an arm's length from the DIC and the distinction between the regulator and insurance must be made evident," said M G Bhide, chairman, NIBM. Former Bank of India chairman Bhide was one of the members of the RBI panel which looked into the deposit insurance reforms in India.

"Though the details (of the new entity) are still being finalised, Sidbi will settle primarily credit claims up to Rs 10 lakh on the upper side," said A Chandramouliswaran, executive director of DICGC.

The fund is required to be commercially viable and will concentrate on small scale industries, Chandramouliswaran said adding "as far as the claims ratio is concerned, the risk will be diversified and will not be concentrated only on the industries in the priority sector."

The DICGC has settled claims of Rs 209 crore, of which Rs 173 crore has been utilised by commercial banks and Rs 36 crore by co-operative banks.

RBI deputy governor Capoor said the non-banking finance companies (NBFCs) will not be given insurance cover for the deposits mobilised by them. "This issue would be examined later," he said. Capoor also added that the financial institutions (FIs) would definitely not be given insurance for their deposit liabilities.

Among other issues raised by chairmen of banks present at the seminar were the possibility of an introduction of the risk-based premiums instead of a flat rate based premium. "It (the risk-based premium) as it would be a fair way to charge premiums," said Bhide adding " this premium would be collected until the insurance fund size of Rs 9,400 crore which is 2 per cent of the total deposit base." At present, it stands at 0.7 per cent and the expected size should be achieved with annual collections of premiums of about Rs 2,350 crore.

While deciding the risk-based premiums, the central bank's CAMELS rating will be used. This has raised concerns among some of the 'weaker banks' as they think that the rating system is not a complete one and instead a rating agency should rate them as the rating model has not taken into consideration factors like solvency, etc.

Bhide clarified that DIC would now become an independent corporation with the central contributing only to the extent of its capital. The RBI would be shelling out the entire Rs 500 crore for the capital but would not interfere in its functioning.