Kathmandu. New Delhi: The Reserve Bank of India (RBI) has decided to introduce a risk-based insurance policy to ensure the safety of deposits of banks and financial institutions.
The Board of Directors of the bank has decided to implement a new provision to make the deposit payment on the basis of the risk of the financial condition of the bank collecting deposits from the general public.
Once the new system comes into effect, it will replace the existing uniform rate system (security charge of 12 paisa per deposit of Rs 100).
The main purpose of deposit protection is to protect the savings of ordinary depositors in the event that the bank goes bankrupt or goes into crisis.
Under the risk-based deposit security fee system that will now be implemented, the charges that banks have to pay to the deposit security fund will depend on their risk. Safe, well-managed banks will have to pay low security fees, risky banks will have to pay higher insurance charges.
For example, a financially sound bank will have to pay a lower fee, while a financially weak bank will have to pay a higher security fee.
This new provision aims to encourage proper risk management and reward prudent behavior with lower costs. It also includes a strategy to reduce ethical risk by discouraging banks from taking too much risk.
The Deposit Insurance and Credit Guarantee Corporation in India guarantees the safety of deposits held by the public in banks and financial institutions as per the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. It is a wholly-owned subsidiary of the central bank.
Currently, the maximum insurance risk per person in India is Rs 5 lakh (Rs 8 lakh). The insurance premium for such insurance is paid by the concerned bank.
