India fared well below developed economies as well as its BRICS peers
India’s Rs 1 lakh ($1,508) insurance cover per bank account is among the lowest in the world. As per an The Economic Times report, the country fared well below developed economies as well as its BRICS peers.
For example, an individual with deposits up to Rs 1 lakh has their funds insured in full, but an individual with Rs 10 lakh in deposit would be eligible for only Rs 1 lakh.
As it stands now, the cover extends to 70 percent of depositors, but only 7.8 percent have deposits below Rs 1 lakh. The insurance cover thus fails to protect a large number of bank depositors who would be hit in case of a bank failure.
What’s more? The insurance cover has not kept pace with current requirements. According to an SBI report, the Rs 1 lakh shield covered 75 percent of bank deposits in 1982. But this figure fell to 28 percent by 2018.
Among BRIC nations, Brazil and Russia provide a cover of Rs 42 lakh and Rs 12 lakh (comparative figures), respectively, the article quotes Soumya Kanti Ghosh, Chief Economic Adviser, State Bank of India, as saying.
Depositors are not the only losers in this situation. The Deposit Insurance and Credit Guarantee Corporation (DICGC), which oversees deposit insurance in India, charges a premium of 0.05 percent on the entire outstanding deposit. It means that banks also pay a premium on deposits, which are not covered.
While in discussion since 2017, the current crisis in Punjab and Maharashtra Cooperative (PMC) Bank has brought the issue of deposit safety to the fore.
Earlier in 2017, late Finance Minister Arun Jaitley had introduced the Financial Resolution and Deposit Insurance (FRDI) Bill, which was swiftly withdrawn in 2018 over concerns that the 'bail-in' clause would allow banks to use depositors' funds to rescue failing financial institutions.One key point to note is that since liberalisation no scheduled commercial bank has 'failed' as the Reserve Bank of India (RBI) ensured such institutions are acquired. Thus, the fallout continues openly only in the cooperative sector.The Great Diwali Discount!
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