If we take the stock market all the stocks purchased by the investors are stored in dematerialized format with the depositories. But to purchase all these types of investments people requires money. In India people have the habit of keeping their money by opening savings account, fixed deposit etc., with the banks, and banks are considered to be most safe place for storing the money.
But in recent times globally, in the US 2 banks collapsed and European banks are in trouble. Though US banks, namely Silicon Valley Bank & Signature Banks collapsed, the deposits of the deposit holder are insured by Federal Deposit Insurance Corporation (FDIC).
Just like FEDIC in US, India have Deposit Insurance and Credit Guarantee Corporation (DICGC).
What is DICGC
DICGC is the wholly owned subsidiary of RBI, formed in 1961 to protect the deposit of deposit holder of the banks up to Rs.5 lakhs per deposit.
Total Registered insured banks are 2040 banks as of FY 2021-22
The number of fully protected accounts at end-March 2022 constituted 97.9% of the total number of accounts in the banking system as against the international benchmark of 80%
How does this insurance applicable to the depositors?
Let’s see with example, Mr. A has current account, savings account and Fixed deposit in XYZ Bank ltd and XYZ bank get liquidated. Below table shows the breakup of how the deposit is insured as per revised limit of Rs.5lakh per deposit.
Findings:
While analyzing the annual report of DICGC it is found that revenue is increasing at a CAGR of 13.2% Y-o-Y. It is because the RBI has increased the premium rate to Rs.0.12 in the year April 2020 from Rs. 0.10 in April 2005. The premium is calculated for Rs.100 per deposit of account holder.
But when we check the net claim status it is completely shocking to see the drastic amount claimed in the FY2021-22. The Net claim amount is Rs.81.21 billion which is 717.8% higher than the net claim for FY2020-21 of Rs.9.93 billion.
It is because RBI has increased the deposit insurance limit to Rs 5 lakh per deposit in the year 2020, February onwards. Earlier the deposit insurance was only Rs 1 lakh per deposit.
Note: Revenue (only Deposit Insurance Premium including interest on overdue premium
The revenue and claim contribution of DICGC is from:
Revenue: Around 90-95% of deposit premium are received from Commercial banks (including PBs, SFBs, RRB and LABs)
Claim settled: Around 90-95% of claim are settled to Co-operative banks.
Conclusion:
The size of Co-operative banks is small and managed by few members hence it is difficult to manage and might result in misallocation of fund. Though DICGC is formed for guarantying the deposit of small investors but while seeing the claim status and continuous failure of co-operative banks forms a barrier for the growth of Indian financial systems. It doesn’t mean commercial banks do not fail, any banks which fails to fulfil norms of banking regulation act 1949 could collapse.
(Source: DICGC annual report)
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