“It is proposed to introduce risk-based deposit insurance premium with the currently applicable flat rate of premium as the ceiling. This will incentivise sound risk management by banks and reduce premium to be paid by better rated banks,” Sanjay Malhotra, governor, RBI had earlier said.
Hyderabad:The Board of Reserve Bank of India on Friday approved the risk-based deposit insurance framework for banks.
The 620th meeting of the Central Board of Directors of Reserve Bank of India was held today in Hyderabad under the chairmanship of Sanjay Malhotra, governor.
Earlier, fulfilling one of the long pending demands of the banking industry, the RBI in its Oct credit policy had decided to allow introduction of risk-based deposit insurance premium from the next financial year.
“It is proposed to introduce risk-based deposit insurance premium with the currently applicable flat rate of premium as the ceiling. This will incentivise sound risk management by banks and reduce premium to be paid by better rated banks,” Malhotra had said.
Noting that the existing system does not differentiate between strong and weak banks, Malhotra had said the RBI plans to implement a risk-based premium model, under which financially sound banks will pay lower premiums, helping them save costs.
All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the Deposit Insurance and Credit Guarantee Corporation(DICGC). Deposit insurance premium is borne entirely by the insured bank. At present, the banks are charged a premium of 12 paise per Rs 100 of assessable deposits.
Each depositor in a bank is insured upto a maximum of ₹ 5,00,000 (Rupees Five Lakhs) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
Deposit Insurance and Credit Guarantee Corporation (DICGC), under the DICGC Act, 1961 has been operating the deposit insurance scheme since 1962 on a flat rate premium basis.