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Exempt the public sector and commercial banks from the deposit insurance regime: AIBEA

Before Lok Sabha passes the deposit insurance bill, the Bank Employees Association of India (AIBEA) urged Finance Minister Nirmala Sitharaman to exempt banks in the sector from his jurisdiction. public and / or commercial banks, which are covered by Article 45. of the Law on Banking Regulation.

Commercial banks pay around 12,000 crore in premiums to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an unwarranted expense as it would otherwise have benefited banks, said CH Venkatachalam, general secretary of the ‘AIBEA, in a letter. to the Minister of Finance on Sunday.

Overhaul of deposit insurance

Venkatachalam pointed out that Section 45 allows the government and the RBI to merge any bank with another bank to avoid closure and loss of customer deposits.

“This is why, while hundreds of banks closed before 1960, with this amendment to the Banking Regulation Act, not a single commercial bank has been liquidated or closed,” he said, adding that ‘there was therefore no question of commercial banking. close. The AIBEA strongly felt that deposits from commercial banks and, above all, from public sector banks, do not need to be covered by the deposit insurance scheme, he said.

Boost for depositors

He pointed out that, year after year, public sector banks and all commercial banks were required to pay a huge premium to DICGC, but the claim rate was zero as there was no likelihood of liquidation. The letter from AIBEA pointed out that the claim settled so far, since 1962, was only 5,200 crore, and that also for the cooperative banks.

The AIBEA missive comes at a time when the government is seeking to increase deposit insurance coverage to ₹ 5 lakh from the current ₹ 1 lakh. The Lok Sabha is expected to consider the bill for adoption 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 threatened with closure and their deposits need protection. Even in their case, the premium should only be charged up to the deposits covered by the insurance, rather than the total assessable deposits, which is much higher, the association said.


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Ruben V. Albin

The author Ruben V. Albin