Comments
Our Bureau
Mumbai, February 4
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India, has raised the limit of insurance cover for depositors in insured banks from the present level of ₹1 lakh to ₹5 lakh per depositor with effect from February 4. The RBI, in a statement, said this hike, with the approval of the Government of India, is with a view to providing a greater measure of protection to depositors in banks.
According to Moody’s Investors Service, the five-fold increase in deposit insurance to ₹5 lakh per deposit holder is credit positive for banks, as it will help raise depositor confidence and support bank funding.
The change will particularly benefit small- and medium-sized private sector and co-operative banks, whose retail deposit bases are not as well developed as the larger public and private sector banks, said the global credit rating agency.
Although banks will need to pay more for the expanded deposit insurance cover, Moody’s expects the benefit will outstrip the cost.
Good for small depositors
Credit rating agency Crisil, in a report, said the increase in deposit insurance coverage for bank deposits by the Deposit Insurance Credit Guarantee Corporation (DICGC) to ₹5 lakh will boost the confidence of small depositors, considering the recent issues faced by a prominent co-operative bank. The scheme covers all types of accounts – savings, current and term deposits.
The higher limit of ₹5 lakh will increase coverage to over 75 per cent of all term depositors compared to 61 per cent earlier, the agency added.
CARE Ratings, in a report, noted that the increase in deposit insurance cover is beneficial to deposit holders, and is generally in line with inflation as the limit was last increased in 1993.
“The number of protected accounts was 92 per cent in FY19, while the proportion of insured deposits to total deposits would increase from the current 28.1 per cent.
“The impact of the increase in insurance costs would need to be examined,” said the credit rating agency.
In his foreword to a research report prepared by the Economic Research Department of State Bank of India, Chairman Rajnish Kumar observed that the increase in deposit insurance coverage will address the fear created in the minds of the public due to certain unfortunate events.
The SBI report said the proposed increase in the deposit insurance coverage is an excellent and anticipated step and with this the coverage is 3.7 times India’s per capita income followed by Brazil (7.1) and US (4.2).
Kotak Mahindra AMC said the proposed increase in deposit insurance amount is positive as it will offer high protection for retail investors.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.