InvestorQ : Is it true that banks will now have to be enhanced premium due to the higher deposit insurance being offered to the customer and will it impact profits?
indhumathi Sayani made post

Is it true that banks will now have to be enhanced premium due to the higher deposit insurance being offered to the customer and will it impact profits?

Answer
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shrinidhi Rajan answered.
7 months ago


Banks will have to take a higher insurance cost to compensate for the higher insurance offered. It may be recollected that the Union Budget 2020 had enhanced deposit insurance limit from Rs.1 lakh to Rs.5 lakh per individual depositor. It is estimated that the cost of insurance as a result of this enhanced insurance cover will be 20% higher for banks. Banks have been specifically instructed by the RBI to foot the bill but the bankers will surely find a way of passing on the cost to the end customer indirectly. Most banks are already operating under wafer thin financial margins and will not be in a position to take this cost on their books. Earlier, RBI had also asked banks to take NEFT cost in their books. The new premiums will be applicable from April 2020. Additionally, banks must also maintain adequate liquidity buffer for such commitments, if called upon.