In a letter to Finance Minister Nirmala Sitharaman on Monday, the General Secretary of AIBEA said as per the Section 45 of Banking Regulations Act, 1947, the government and the Reserve Bank of India (RBI) have the powers, in public interest, to amalgamate any bank with another bank.
He said this would avert bank closures and consequent loss of deposits of the customers.
"Further, with the nationalisation of major banks in 1969 and 1980, the public sector banks also enjoy the sovereign guarantee of the government," Venkatachalam said.
According to him, there is no question or possibility of any commercial bank getting closed or liquidated as per Section 45 of the Banking Regulations Act.
"Hence we strongly feel and opine that the deposits of commercial banks, importantly, the public sector banks, need not be covered by the Deposit Insurance Scheme at all," he said.
According to Venkatachalam, the commercial banks paid a premium of Rs 11,190 crore during 2018-19 and Rs 10,350 crore the previous year to Deposit Insurance and Credit Guarantee Corporation (DICGC) with zero claims.
Venkatachalam said the total amount of deposits under 200 crore bank accounts were Rs 120 lakh crore whereas the deposit insurance cover is only for Rs 33.70 lakh crore or 28 per cent.
He said while the premium is calculated on the entire Rs 120 lakh crore of commercial bank deposits, the insurance cover for bank deposit is only up to Rs 1 lakh.
In the case of public sector banks, the total deposit is about Rs 70 lakh crore and the insurance cover is only for Rs 28 lakh crore or 30 per cent of the total deposits.
Venkatachalam said, as on 31-3-2019, the Deposit Insurance Fund of DICGC is Rs 97,350 crore including a surplus of Rs 87,890 crore. The claims settled so far since 1962 is only Rs. 5,120 crores and that too for the cooperative banks.
"Out of 2,098 banks covered by the DICGC, 1941 banks are co-operative banks. Only these banks are facing problems of closure and liquidation and the deposits of these banks need to be covered by DICGC. Even in the case of these banks, only to extent of deposits covered by the insurance cover, premium should be charged and not on the total assessable deposits which is much higher," Venkatachalam told the Finance Minister.
Disclaimer: This story has been cleared from an automated feed with no edits to the contents except for the headline. Image used is that of depositors thronging branches of Punjab Maharashtra Cooperative bank on the day when news broke of a large fraud gripping the bank.