Overview
The objective of the paper is to compare the current pricing of deposit insurance for the banks in
India against the risk based deposit insurance system. This paper has been organized into three
sections. The first section gives an overview of the present deposit insurance system of India.
Thereafter, Section 2 analyzes the different risk-based deposit insurance pricing models and
elucidates the pricing based on the same methods for 15 different Indian Banks. Finally, Section 3
forms a case for the introduction of risk-based deposit insurance pricing in India and also mentions
some pre-requisites for the same.
4
1. Deposit Insurance in India
The Deposit Insurance in India is managed by Deposit Insurance and Credit Guarantee Corporation
(DICGC). The DICGC provides insurance to depositors as well as bank credits to risky borrowers
like small borrowers and small-scale industries.
Some of the salient features of the Deposit Insurance System that currently exists in India are:
• Under the Scheme, in the event of liquidation, reconstruction or amalgamation of an insured
bank, every depositor of that bank is entitled to repayment of his deposits held by him in the
same right and capacity in all branches of that bank upto a monetary ceiling of Rs. 1, 00,000.
• A depositor can obtain more coverage by opening deposit accounts in different insured banks
but not at different branches of the same insured bank.
• The insured bank has to pay premium at the rate of 5 paise per annum per hundred rupees,
which is collected at half yearly intervals.
• The banks are required to bear this fee so that the protection of insurance is available to the
depositors free of cost. Penal interest @8% above Bank Rate is charged ...