According to recent reports, Indian banks are lobbying the Reserve Bank of India (RBI) to expand deposit insurance coverage, especially for senior citizens. This initiative is borne out of concern for the financial security of this vulnerable group, which often relies heavily on income from bank deposits.
Background of the request
According to the Economic Times, the discussions began after an internal meeting of bank officials in September. “We are in informal discussions with regulators and are working to submit a more detailed plan to both the government and the central bank by the end of this month,” a senior bank official said. This approach highlights the urgency and importance of this issue for financial institutions.
Current account insurance coverage
Currently, the deposit insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) is set at Rs 500,000 per depositor per insured bank. The bank proposes to increase this amount, taking into account the unique financial situation of the elderly. The executive further explained:
Many elderly people rely solely on interest earned on bank deposits to support their lives. Given longer life expectancies and rising inflation, there is an urgent need to regularly review and increase coverage amounts.
legislative background
In 2021, the Indian Parliament enacted the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, which allows depositors of failed banks to lose ₹500,000 within 90 days even if the RBI puts them on moratorium. We have guaranteed that we will receive the following refunds:
historical development
The recent financial instability in the banking sector may be behind the urgent need to expand deposit insurance for the elderly. Notable incidents include:
In 2020, following the failure of banks such as Punjab and Maharashtra Cooperative (PMC) Bank, the government increased the deposit insurance coverage five times from Rs 100,000 to Rs 500,000. The financial stress facing Yes Bank and Lakshmi Vilas Bank required further restructuring efforts from regulators and the government.
Significance of the proposed change
The proposed expansion of deposit insurance coverage for the elderly is an important step toward ensuring financial stability for the elderly. Important points to consider are:
Vulnerability: Older adults often face increased financial risks and challenges. Dependence on interest: Many people rely primarily on bank deposits for their income, making them particularly susceptible to financial instability. Inflation and longevity: Rising costs of living and longer life expectancies now require periodic review: Financial conditions change over time, so deposit insurance coverage to meet the evolving needs of depositors should be evaluated regularly.
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