How safe is your bank balance?

How safe is your bank balance?: While the Government effectively stands guarantee for most deposits by bailing out banks, deposit insurance is woefully low...

Deposit insurance

Apropos Radhika Merwin’s article “How safe is your bank balance?” (Business Line, November 9), one feels that at Reserve Bank of India, some issues are kept in the back burner, probably because they have a different set of priorities which is not easy for common man to decipher. Examples galore. Let me restrict to three.
(i)The RBI’s Balance Sheet included in the Annual Report 2015-16 carries an observation:
“An amount of `10 million each has been transferred to the National Industrial Credit (Long Term Operations) Fund, the National Rural Credit (Long Term Operations) Fund, the National Rural Credit (Stabilisation) Fund and the National Housing Credit (Long Term Operations) Fund during each of the five years. An amount of `10 million each has been transferred to the National Industrial Credit (Long Term Operations) Fund, the National Rural Credit (Long Term Operations) Fund, the National Rural Credit (Stabilisation) Fund and the National Housing Credit (Long Term Operations) Fund during each of the five years.”
The transfer is in compliance of a statutory provision in the Reserve bank of India Act, 1934. High time, the position is reviewed and contributions made with reference to felt needs.
(ii) The retirees from RBI covered by RBI Pension Regulations, 1990 are drawing pension with reference to 4 reference dates (November 1, 1997, 2002, 2007 and 2012) while pension introduced effective January 1, 1986 was revised every time wage was revised for serving employees till November 1, 1997. Last two Annual Reports carry an observation that RBI is engaged with GOI regarding pension revision. Pension Scheme in RBI is a fully funded one unlike in GOI where the practice is “Pay As You Go”.
(iii) DICGC which is a fully owned subsidiary of RBI is a neglected baby. While RBI has a history of being professionally managed since inception, DICGC, having no worry about sources and uses of funds, survives like a small ‘government department’ within RBI. The whole approach to deposit insurance in India is due for a review and overhaul, considering factors like:
(a)    Should Government owned banks should continue to be covered under Deposit Insurance Scheme,
(b) Adequacy of deposit insurance cover,
(c)  Whether deposit insurance premium should be worked out keeping in view the risk-weights of individual banks,
(d) Whether Deposit Insurance cover should be for aggregate deposits held in banks by an individual or should continue as at present, and
(e)  What will be the impact on the image of individual banks, if a differential system for premia and threshold for coverage is introduced.

M G Warrier

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