At Rs 1 Lakh, Indian Banks Provide Lowest Insurance In The World: SBI Report
A report by the State Bank of India (SBI) on Monday, October 7, said that at Rs 1 Lakh, India’s 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 report comes at a time when Punjab and Maharashtra Cooperative (PMC) Bank financial crisis is deepening and the depositors fear losing their savings to the fiasco.
The Economic Research Department of the State Bank of India has come 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.