How to Calculate DICGC Premium for Banks

In India, most banks come with DICGC insurance as it is a mandatory requirement set by the Reserve Bank of India (RBI). To ensure this coverage, banks are required to pay a premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC). The amount of this premium is determined based on the total deposits held by the bank.

Keep reading to find out everything about how to calculate DICGC premium and other associated details that you need to know!

How Does DICGC Work?

The Deposit Insurance and Credit Guarantee Corporation is a subsidiary regulated by the RBI. Established in 1978, its primary objective is to safeguard depositors' savings in case a bank becomes insolvent. To provide this security, DICGC insures deposits up to a coverage limit of ₹5 lakh, which includes both the principal amount and the interest earned.

Here is a brief overview of the process concerning how DICGC works:

• Registration of Banks: All banks in India need to register with DICGC to be eligible for deposit insurance.
• Paying of Premium: Banks then need to pay premiums to DICGC for insurance coverage.
• Submission of Claims: In the unforeseen event of a bank failure, the liquidator submits the receipt of claims to the DICGC on behalf of depositors.
• Verification and Amount Disbursement: DICGC verifies the claim lists consisting of depositors' names. After this, the amount disbursement happens within two months.

What Is the Basis of DICGC Premiums that Banks Pay?

The DICGC premium rate charged to banks is calculated based on the total deposits recorded on the last day of the previous half-year. For example, if the half-year period ends in September 2024, the deposit base considered will be from March 2024. Accordingly, the last date for premium payment would be May 2024.

In case any insured bank under DICGC misses paying premium, they are given a 2-month tenure to make a premium payment on their total deposits. 

How to Calculate DICGC Premium for Banks?

The DICGC premium limit due on the assessable deposit is calculated using a mathematical formula. Banks are charged at a rate of 10 paise per ₹100 of deposits annually (0.10%) or 5 paise per ₹100 of deposits per half-year (0.05%). The formula for calculating the premium is:

Current Premium Payable = Assessable Deposit × 0.05% = Assessable Deposit × 0.0005

This is essentially how to calculate DICGC premium for a year. The premium amount is automatically calculated in the online version of the DI-return form. However, for manual returns, banks must calculate and enter the amount themselves. The reported amount must be stated in actual rupees.

Example for Better Understanding:

Let’s say a bank has total deposits of ₹100 crore (₹100,00,00,000) as of the last day of the half-year period, which is March 31, 2024. To calculate the DICGC premium for this deposit:

Formula: Premium Payable = Assessable Deposit × 0.05%
Premium Payable = ₹100,00,00,000 × 0.05%
Premium Payable = ₹100,00,00,000 × 0.0005
Premium Payable = ₹50,000

So, for a total deposit of ₹100 crore, the bank would need to pay a premium of ₹50,000 to the DICGC for that half-year period.

This calculation helps banks to determine the amount they owe to DICGC based on the size of their deposit base.

Penal Interest Rate for Delay in Paying Premiums to DICGC

In the event of a delay in making premium payments to DICGC, banks become liable to bear a penalty of 8% interest above the bank rate. This is to be done from the start of the financial year and till the payment date.

For example, if the half year ending is on 30th September 2024 then the charged penal interest will be at bank rate percentage of 8% beginning from 1st April 2024. Hence, banks need to pay the premium within the due date so that they do not get penalised.

Note that payments made through remitting banks may sometimes be returned. Such delays can lead to penal interest. To avoid this, banks must verify with the remitting bank that the payment has been processed correctly.

Final Word

Banks in India need to pay their DICGC premiums on time to ensure depositors receive insurance coverage at no additional cost. This approach benefits both banks and their customers in the long run. In the event of a bank failure, DICGC steps in to reimburse depositors. Thus, it is crucial for banks to understand how to calculate DICGC premiums accurately.

Now you can secure your savings with Stable Money. Invest in a DICGC-insured FD and earn up to 9.10% interest. Download the app now and start growing your savings without any risk!

Related Posts: