The Deposit Insurance and Credit Guarantee Corporation (DICGC) has rejected a request made by banks to exempt certificates of deposit (CDs) from deposit insurance coverage.
Bankers’ underscored that CDs, which have a tenor of up to one year, are issued in minimum denomination of Rs. 5 lakh and in multiples of Rs. 5 lakh thereafter, usually to institutional investors, but DICGC’s deposit insurance cover is only available for deposits up to Rs. 5 lakh.
Currently, banks pay an insurance premium of 12 paise per Rs. 100 of deposit, including CD, raised.
Banks’ request to exempt CDs from DICGC coverage comes even as they have augmented funds mop up via CDs since June 2022 due to liquidity tightness in the market. Deposit insurance premium payment leads to outgo of funds.
The outstanding CDs of banks (net of repayments) increased by Rs. 62,171 crore from Rs. 1,89,977 crore as on June 03, 2022, to Rs. 2,52,148 crore as on September 23, 2022, with the rate of interest rising from 4.89-5.89 per cent to 5.81-6.73 per cent during the said period.