About 49.1 per cent of the total amount held as deposit with Indian banks is not covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, finds the Economic Survey 2021-22. This is after the insurance cover amount was raised to Rs5 lakh. Earlier, when the cover was only for Rs1 lakh, about 60 per cent of the amount in bank deposits was not covered. The DICGC Act, passed by the Indian Parliament in August 2021, made significant changes in the landscape of deposit insurance in India.
“In terms of amount, the total insured deposits (Rs 76.2 lakh crore) as at end-March 2021 constituted 50.9 per cent (up from about 30 per cent under Rs 1 lakh cover) of the total assessable deposits (Rs 149.7 lakh crore) as against the international benchmark of 20-30 per cent,” stated the Economic Survey 2021-22.
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With deposit insurance coverage of Rs5 lakh per depositor per bank, there were 247.8 crore fully protected accounts at end-March 2021, constituting 98.1 per cent of the total number of accounts (252.6 crore). This is much higher than the international benchmark of 80 per cent.
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Recently, some stressed banks complained of facing troubles as depositors were not able to withdraw their deposits.
As per the Reserve Bank of India (RBI) guidelines, all commercial banks, including branches of foreign banks functioning in India; local area banks and regional rural banks; and cooperative banks, including all state, central and primary cooperative banks need to be insured by the DICGC. Under the Act, the Corporation is liable to pay the insured deposit amount to depositors of an insured bank. Such liability may arise when an insured bank undergoes: (i) liquidation (sale of all assets on closing down of the bank) (ii) reconstruction or any other arrangement under a scheme, or (iii) merger or acquisition by another bank.
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The Economic Survey stated that the “interim payment will now be made by DICGC to depositors of those banks for whom any restrictions/ moratorium have been imposed by RBI under the Banking Regulation Act resulting in restrictions on depositors from accessing their own savings.” This means that depositors whose money was stuck in a stressed bank, will receive interim payment from DICGC, within 90 days of the freeze (the insured bank has 45 days to give details of outstanding deposits; the Corporation has 30 days to verify authenticity of claims; and within 15 days of that, the payment has to reach such depositors). The move provides relief to depositors of stressed lenders. RBI governor Shaktikanta Das had recently cautioned investors: “There are institutions offering higher rates. Higher return, higher interest rate (also has) higher risk. Depositors should be careful while chasing high returns.”
One must note that deposit amounts only up to Rs5 lakh are insured. “The deposit insurance coverage that began with Rs 1,500 in 1961 has been raised gradually to Rs 1 lakh in 1993 but had been static thereafter till 2020,” the Economic Survey stated. However, since the Act came into force in August last year, over Rs 1,500 crore has been paid to over 1.2 lakh depositors against their claims, as of early January 2022.
