Deposit Insurance Of Rs 1 Lac Creates Panic, HDFC Cites RBI Guidelines

The Logical Indian Crew India

October 18th, 2019 / 12:26 PM

Image Credit: The Indian Express, India Today 

Leading private sector bank HDFC, on Wednesday, October 15, issued a clarification with reference to an image of a passbook bearing a stamp of deposit insurance cover being circulated on social media.

The image that surfaced on social media shows an HDFC passbook with a stamp claiming deposits in the bank up to Rs 1 lakh is insured. This created much panic among customers as people began sharing the image on all platforms.

“The deposits of the bank are insured with DICGC and in case of liquidation of the bank, DICGC is liable to pay each of the depositors through the liquidator. The amount of this deposit is up to Rs 1 lakh within 2 months from the date of claim list from the liquidator,” the stamp read.

Issuing a clarification, HDFC Bank said that the information was not new and was according to RBI circular on June 22, 2017.

“This pertains to information about the deposit insurance cover. We would like to clarify that the information has been inserted as per RBI circular dated June 22, 2017 which requires all Scheduled Commercial Banks, all Small Finance Banks and Payment Banks to incorporate information about ‘deposit insurance cover’ along with the limit of coverage upfront in the passbook,” the bank said in a statement.

The failure of Punjab and Maharashtra Co-operative (PMC) Bank has triggered the debate on the low level of insurance coverage for deposits held by the public in banks.

A report by the State Bank of India (SBI) on Monday, October 7, said that at Rs 1 Lakh, bank deposit insurance in India is one of the lowest in the world.

A deposit insurance coverage ensures that the depositor gets a certain amount before the bank pays other parties at the time of liquidation. In India, deposit insurance is provided by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC), which collects a premium of 0.05% on the entire outstanding deposit. What this means is that risk-averse people who choose bank deposits to park their life savings could lose a large chunk of their fund in case of a bank failure. 

The Economic Research Department of the State Bank of India came out with a report titled, “Time for a hike in deposit insurance and a resolution platform for NBFCS?”

According to the report, in India, deposits are insured up to Rs 1 lakh, while the number for countries like Brazil and Russia stand at ₹42 lakh and ₹12 lakh, respectively. The report states that since 1993, there has been a paradigm shift in the profile of customers and the conduct of business by banks. 

According to the report, while 75% of the bank deposits were covered under insurance in the fiscal year 1982, this dropped to 28% in 2018.

“So clearly, it seems on paper that the number of small depositors is adequately covered in terms of insurance cover, but in terms of quantum of deposits, we observe that percentage of deposits less than Rs 1 lakh is only 7.8 per cent of the deposit base,” the report said. Besides, 20.4 per cent of the deposits are contributed by customers having deposits of more than Rs 15 lakh but less than Rs 1 crore, with average deposits of ₹35 lakh.

Customers with a balance between Rs 15 lakh and Rs 1 crore get protection only to the extent of 2.8 per cent of their deposits, though the premium is paid on the entire value of deposits held by them, the report added.

“The DICGC, a subsidiary of Reserve Bank of India (RBI), for term depositors of banks should be doubled from the existing Rs 1 lakh to Rs 2 lakh,” said SK Ghosh, group chief economist at the State Bank of India in the report.

“There should also be a separate provision for senior citizens and retired people because these people have no social security in place and mostly keep fixed deposits for earning interest income which in many cases becomes a part of their current income for regular upkeep,” he added.


Also Read: RBI Governor Under Pressure, Directors Raise Questions On ‘Undetected’ Bank Frauds


Contributors

Written by : Navya Singh

Edited by : Bharat Nayak

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