Depositors can count on a 5-fold increase in insurance

The government's decision to allow insurance to cover up to Rs 5 lakh of deposits from the current Rs 1 lakh will increase investors' faith in deposits amid cooperative bankruptcy banks and ru more than weak banks. The flip side is that banks will have to pay a higher premium to the Credit Guarantee Corporation, an RBI arm that provides coverage.

As of March 31, 2019, about 28% of bank deposits (in terms of value) and about 92% of depositors (in terms of the number of accounts) were covered by deposit insurance, which is likely to increase to around 40-50%.

“The proposal is a measure that increases confidence and should support the accumulation of bank deposits. However, given that the size of the insured deposits is likely to increase, the deposit insurance premium paid by the banks will increase the operating expenses of the banks and will be negative for their profitability insofar as they cannot transfer it to customers. of the bank, said SVP and Group Leader, Financial Sector Ratings, ICRA Ltd.

The issue of deposit insurance came to the fore with the crisis of PMC Bank, where the general public learned that only banks insured Rs 1 lakh from their deposit. According to the DICGC annual report, banks are currently paying 100 rupees for each 1 lakh rupee deposit, which translates into a 0.1% cost on the deposit.

Live plus According to Mrutyunjay Mahapatra, MD and CEO of Syndicate Bank, the increase in the premium will depend on the number of accounts that have such high balances. He adds that there has not been enough debate about the price of deposit insurance.

Private banks are comfortable with the issue of a higher premium. “While this could mean some expenditure for the banks, this would certainly give comfort to retail savers. Similarly, the proposal to amend banking laws to strengthen cooperative banks should also infuse plus confidence among savers,” said R. K. Gurumurthy - Head Treasury, Lakshmi Vilas Bank.

According to Srinivasan, even if the cost is transferred to all banks, the impact would be marginal in its balance sheet. Based on the return on assets (ROA), the impact would be only a couple of basic points, he said.

Los bancos PSU plus fuertes creen que debería existir. El fondo de seguro de depósitos de DICGC se ha movilizado en gran medida de la prima pagada por los bancos del sector público. Pero casi todos sus reclamos son de bancos cooperativos fallidos.

Alpesh Mehta, a banking analyst, said banks are likely to transfer the cost to customers. Banks will pass the cost to depositors by reducing their interest rates, he said.

Pero algunos dicen que incluso la cobertura de Rs 5 lakh es inadecuada. “Incluso mi doncella tenía Rs 7 lakh en PMC como ahorro. Deberían darnos una cobertura del 100%. Estamos dispuestos a pagar una prima plus alta ”, dice (49), cuya familia, en conjunto, tiene Rs 1.3 millones de rupturas atrapados en el Banco PMC en FD y cuentas de ahorro.

“Look at the number of people and companies, including an RBI employee cooperative, that have thousands of dollars with PMC Bank. How is Rs 5 lakh suitable? ”, Asks Aarti Salgaonkar, filmmaker and bank depositor of PMC. A number of others, such as Sri, based in Bengaluru, and the Shivajirao Bhosale Cooperative Bank, based in Pune, have also been affected.