Govt should bear higher premium for increased deposit insurance: AIRBEA
Feb 20, 2025
Currently, with coverage being for Rs 5 lakh, 97.8 per cent of the total number of deposit amounts are fully protected. However, in terms of value only 43.1 per cent of the deposits are insured
The government should pay the additional premium if it goes ahead with its proposal to increase the insurance cover of bank deposits, the All India Reserve Bank Employees Association (AIRBEA) has said, while pointing out that commercial banks are well-regulated and their failures are rare.
The employees' union said that the government should pay this additional premium from the higher returns they are getting from the banking sector.
“…this will burden the banks as regards payment of premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which will not be fair for commercial banks which are well-regulated and their failures are few and far between,” AIRBEA said in a statement.
“Now, the banks are paying handsome returns to the government out of their earnings. AIRBEA proposes that the higher premium to be paid for higher coverage might be met by the government from the higher returns they are getting from the banking sector,” it said.
Following the crisis at New India Cooperative Bank, which led the Reserve Bank of India (RBI) to bar the bank from issuing new loans, suspend deposit withdrawals for six months, supersede the bank’s board, and appoint an administrator, the government is now considering a proposal to increase the deposit insurance cover, which currently stands at Rs 5 lakh.
Currently, deposits of up to Rs 5 lakh are covered under the deposit-insurance scheme of Deposit Insurance and Credit Guarantee Corporation (DICGC). The cover was increased from Rs 1 lakh with effect from February 4, 2020, in the aftermath of the Punjab & Maharashtra Cooperative Bank crisis.
“AIRBEA welcomes the proposal mooted by the Department of Financial Services, Government of India to increase the insurance cover of bank deposits by the common depositors of commercial banks, co-operative banks, NBFCs etc., regulated by the RBI,” the association said in a statement.
Previously in 2018-19, AIRBEA had suggested to the government and appropriate authorities that the deposit coverage should be increased to Rs 10 lakh. However, the coverage was enhanced to at Rs 5 lakh.
Currently, with coverage being for Rs 5 lakh, 97.8 per cent of the total number of deposit amounts are fully protected. However, in terms of value only 43.1 per cent of the deposits are insured as of March 2024.
Going by the rate of inflation, erosion in the value of rupee, the revised amount should be substantially more than Rs 10 lakhs, as proposed by AIRBEA earlier, it said.
[The Business Standard]
