ICRA, a rating agency, said today that raising the deposit insurance limit could reduce banks' net profits by up to Rs 12,000 crore per year. This results in a decrease of up to 40 basis points in return on equity (RoE) and up to four basis points (bps) in return on assets (RoA).
Furthermore, increasing the insurance premium will have a cumulative impact on RoA and RoE of up to seven and 68 basis points, respectively, according to ICRA in a statement issued today.
While the proposed increase in the deposit insurance limit is unknown, under different scenarios, the insured deposit ratio (IDR) could rise to 47.0-66.5 percent. The IDR represents the ratio of insured deposits to assessable deposits.
The IDR represents the ratio of insured deposits to assessable deposits. It was 43.1% as of March 31, 2024 (44.4% as of March 31, 2023).
The deposit insurance limit was raised from Rs 1 lakh to Rs 5 lakh per depositor and institution by the Deposit Insurance and Credit Guarantee Corporation (DICGC) in February 2020. After a cooperative bank failed recently, this has come under scrutiny. Additionally, for every Rs 100 deposit, the insurance premium may be raised to Rs 0.15 (from Rs 0.12). In order to help the DICGC strengthen its Deposit Insurance Fund (DIF), this would be carried out with the Reserve Bank of India's (RBI) prior approval.
As of March 31, 2024, 97.8% of the total number of eligible/assessable accounts were fully covered. The remaining 2.2% of accounts were partially covered up to Rs 5 lakh, according to the rating agency.
