India’s deposit insurer is overcharging commercial banks
₹21,381 crore, with investment income at ₹11,908 crore, and revenue surplus after tax at ₹24,559 crore. As an insurance company, it has an actuarial valuation for liability as of 31 March 2023 at ₹12,174 crore, but surplus collection to date beyond actuarial liability totalled ₹1,57,427 crore. The total funds available with the Deposit Insurance Fund are ₹1,69,602 crore, or 2.02% of the total insured amount.
With these impressive surpluses, the key issue to be examined is whether DICGC is overcharging banks for premiums to collect a surplus? Can the premiums be reduced and based on the risk profiles of the insured bank, which will reduce the overall costs of compliance in the banking system? Commercial banks have lower risk profiles: Insurance premiums rose from 5p per ₹100 insured in 1962—when DICGC was set up—to 10p in 2005 and 12p in 2020. Insurance coverage was capped at ₹1,500 in 1962, which increased to ₹1,00,000 in 1993 and ₹5,00,000 in 2020. Today, DICGC collects insurance premiums at 12p per ₹100 insured for all deposits up to ₹5 lakh per person.
This premium is uniformly applied, irrespective of whether the bank is commercial or cooperative, despite the differing risk profiles and management structures. Of the 2,026 insured banks, 139 are commercial and 1,887 cooperative banks. Insured deposits totalled ₹83,89,470 crore, of which ₹77,00,667 crore were deposited with the commercial banks and the rest ₹6,88,803 crore with the cooperative banks.
Accordingly, of the total premiums collected in 2022-23 of ₹21,381 crore, ₹20,104 came from commercial banks and ₹1,277 crore from cooperative banks. However, the claims profile is reverse, with cooperative banks requiring 98%-plus of the total claims to date. Since 1962,
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