Money & Banking

Dire need to revisit deposit insurance coverage, says SBI report

Our Bureau Mumbai | Updated on October 07, 2019 Published on October 07, 2019

The current upper limit of ₹1 lakh per depositor has outlived its shelf life, and there is a need to revisit it, says the report.


There is a dire need to revisit the insurance coverage of the bank deposits as over the years the percentage of assessable deposits has declined from a high of 75 per cent in FY82 to 28 per cent in FY18, according to a study by State Bank of India's economic research department.

The recent Punjab and Maharashtra Co-operative bank crisis has again raised the question of deposit insurance in India, the study said.

“In particular, the current upper limit of ₹1 lakh per depositor, we believe, has outlived its shelf life and there is a need to revisit it. Further, over the years, the composition of the Bank deposits has undergone massive changes in India,” as per the Bank's Ecowrap report.

Read also: Deposit insurance: what you didn’t know

In this backdrop, the report suggested that the DICGC (Deposit Insurance and Credit Guarantee Corporation) coverage should be revised and bi-furcated into two categories: 1) desirable coverage of at least ₹1 lakh for Savings Bank (SB) deposits (around 90% of the total SB accounts) and 2) advisable coverage of at least ₹2 lakh for Term Deposits (about 70 per cent of the total TD accounts). There should also be a separate provision for senior citizens.

This revision in DICGC coverage becomes all the more desirable in the Indian context, where senior citizens / retired people have no social security in place and mostly keep fixed deposits for earning interest income, said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Read more: India’s deposit insurance cover remains the lowest globally

Apart from this, it is also suggested that depositors should get an incentive to spare a part of their total deposits to buy Bank Bonds that provide guaranteed coupon rates on a half-yearly basis and are tax-free.

Ghosh emphasised that this will herald a new paradigm in the Indian deposit banking sphere since tax-free and guaranteed payments of a certain income will do much to encourage depositors to come forward with offers to provide a part of their savings in exchange for the shares in the banks.

More read: Time to scale up deposit insurance

Referring to the Government introducing “The Financial Resolution and Deposit Insurance (FRDI) Bill” in the Parliament in 2017 but withdrawing it in 2018 due to the bail-in clause and mass protest across the country, the report said: “We believe that Government should again promulgate the FRDI bill without the “bail-in” clause since, in India, the average income of a vast majority of depositors is modest.”

NCLT like a framework for NBFCs

As far as the currently persisting problems in the NBFC (non-banking finance company) sector are concerned, the time has now come to think of an NCLT (National Company Law Tribunal) like the framework to enhance the investor confidence and thereby provide the much-required fillip to the lending to the NBFCs, the report said.

However, this must be done in conjunction with identifying NBFCs with a weak balance sheet and working on a quick resolution. This could be by facilitating an ownership change or bringing in a financially stable promoter.

Published on October 07, 2019

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor