Ahead of the Lok Sabha taking up the Deposit Insurance Bill for passage, the All India Bank Employees’ Association (AIBEA) has urged Finance Minister Nirmala Sitharaman to exempt from its purview public sector banks and/or commercial banks, which are covered under Section 45 of the Banking Regulation Act.
Commercial banks pay about ₹12,000 crore of premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an unwarranted expenditure as it would otherwise have gone to the banks’ profit, CH Venkatachalam, general secretary, AIBEA, said in a letter to the Finance Minister on Sunday.
Venkatachalam pointed out that Section 45 empowered the government and the RBI to amalgamate any bank with another bank to avert closure and loss of customers’ deposits.
“That is why, while hundreds of banks were getting closed prior to 1960, with this amendment to Banking Regulation Act, not a single commercial bank has been liquidated or closed,” he pointed out, adding there was thus no question of any commercial bank getting closed down. The AIBEA strongly felt that the deposits of commercial banks and, importantly, public sector banks, need not be covered by the deposit insurance scheme, he said.
He highlighted that, year after year, public sector banks and all commercial banks were required to pay a huge premium to DICGC, yet the claim ratio was nil since there was no likelihood of liquidation. The AIBEA letter highlighted that the claim settled so far, since 1962, was only ₹5,200 crore, and that too for cooperative banks.
The AIBEA’s missive comes at a time when the government is looking to increase the deposit insurance coverage to ₹5 lakh from ₹1 lakh at present. The Lok Sabha is expected to take up the Bill for passage on Monday.
The AIBEA letter also highlighted the fact that of the 2,067 banks covered by the DICGC, the 1,923 cooperative banks were the only ones facing threats of closure and their deposits need protection. Even in their case, the premium should be charged only to the extent of deposits covered by insurance, rather than the total assessable deposits, which is much higher, the association said.