The Budget 2020-21 had brought some respite to depositors by increasing the deposit insurance cover to ₹5 lakh (effective February 4) from ₹1 lakh earlier. Yet the latest annual survey by the International Association of Deposit Insurers (IADI) reveals that India ranks in the bottom 20 among the 110-odd countriesin terms of insurance cover. The coverage limits range from below $1,000 to $300,000; India’s ₹5-lakh cover works out to about $7,000, according to the IADI Survey (around $6,800 as per current exchange rate). Countries such as Philippines ($9,875), Mexico ($1,35,222), Argentina ($25,130) Russian Federation ($22,615), Turkey ($25,253), Malaysia ($61,080) and Brazil ($62,033) rank way higher than India, according to the latest IADI Survey.

The majority of the 110 deposit insurance systems (DIS) across the world are legislated and administered by the public sector, although around one quarter are privately administered, says the survey.

IADI has been monitoring the global Covid situation and its impact on deposit insurers. According to it, unlike the financial crisis of 2008, most deposit insurers have not opted to increase deposit insurance coverage.

The survey notes that the average level of coverage was around $70,000 per depositor per institution across the globe. The regions with the highest average coverage levels are Europe and North America ($110,000). India’s cover, at an abysmal $1,446 before the increase in the Budget in February this year, jumped to around $7,000 levels. But this still remains among the lowest globally.

Delays in reimbursements

Aside from a relatively low cover, reimbursements also appear to take longer in India. According to the IADI Survey, deposit insurers across the globe are devoting more resources to improving their performance on reimbursing insured deposits, and this has resulted in reductions in reimbursement periods. The average number of days to begin depositor reimbursement has been reduced to seven in 60 per cent of jurisdictions, up from 33 percent in 2013. The reimbursement periods begin from the date of the closure of the bank.

In India, according to the 2019-20 annual report of Deposit Insurance and Credit Guarantee Corporation of India (DICGC), the average number of days between de-registration of a bank and claim settlement (first claims) was about 508 days during the fiscal.

There are essentially four mandates followed across jurisdictions. Paybox – the deposit insurer is only responsible for the reimbursement of insured deposits; Paybox-plus – insurer has additional responsibilities, such as certain resolution functions (financial support); loss minimiser – where insurer actively engages in a selection from a range of least-cost resolution strategies; and risk minimser – insurer has comprehensive risk minimisation functions, including a full suite of early intervention and resolution powers.

Around 25 per cent of deposit insurers are assigned a ‘pay box’ mandate, according to IADI, while 40 per cent of systems followed a ‘play box-plus’ mandate. India follows a paybox mandate, while Argentina and Brazil follow pay-box plus mandate. Brazil and Malaysia have a wider risk minimiser mandate.