Banks have approached the central bank to propose an increase in deposit protection for seniors, while asking for a reduction in premium payments to insure other personal deposits.
The move follows an internal meeting of bank officials last month, after which the institutions jointly decided to take the matter to the central bank, according to two executives familiar with the move. “We are in informal discussions with regulators and are working to submit a more detailed plan to both the government and the central bank this month,” a senior bank official said.
As per the current regulations, the deposit insurance coverage is set uniformly at Rs 500,000 per depositor per insured bank.
Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of RBI, insures deposits across the banking system. This insurance is funded by premiums collected from insured institutions, and the funds are used to pay depositors in the event of a bank failure.
Banks are proposing that this amount should be increased for the most vulnerable group of depositors: the elderly. “Most of them rely solely on income from bank deposits, which is why considering factors such as life expectancy and inflation,” he said. He added that a proportionate minimum amount could be reached if both the central bank and the government agreed.
In August 2021, Parliament passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, paving the way for increasing bank deposit insurance coverage from Rs 100,000 to Rs 500,000, with the amount for 90 days. The deposit will be refunded to the depositor within a short period of time. Further changes would also require parliamentary approval, the official said, adding that the DICGC could decide on the premium amount. Approved by RBI in 2020, the premium amount increases from 10 paise to 12 paise per ₹100 of annual assessable deposits. Another bank official said if such changes are included, the calculation of premiums banks pay may also be reassessed. “It should be applied only up to the insured amount, regardless of the actual deposit balance per depositor,” he said, adding that the new mechanism would help banks increase savings. The new mechanism could also take into account other factors, such as economic growth rates and growth in bank deposits.
In August, RBI Deputy Governor M. Rajeshwar Rao, in his address at the 2024 IADI Asia-Pacific Regional Committee International Conference, said that multiple factors such as increase in the value of bank deposits, economic growth rate, inflation and rising income levels Considering these factors, periodic upward revision of the current ₹500,000 limit may be justified. “This means deposit insurers need to be mindful of the additional funding and come up with appropriate options to accommodate it,” he said.
