Raise deposit insurance cover to Rs 10L: All India Reserve Bank staff body

AIRBEA has cautioned that raising the deposit insurance cover would increase the premium burden on banks, which may not be fair for well-regulated commercial banks with low failure rates

 

The All India Reserve Bank Employees Association (AIRBEA) has welcomed the proposal of the Department of Financial Services, Government of India, to increase the insurance coverage for bank deposits across commercial banks, co-operative banks, and NBFCs regulated by the Reserve Bank of India.  

 

In a press statement, Kolkata-based AIRBEA noted that while the deposit insurance cover was raised from Rs 1 lakh to Rs 5 lakh in February 2020, the insured amount in India remains significantly lower than in many other countries, including the US, UK, Russia, China, and Germany.  

 

'Risks and uncertainties'

 

Highlighting concerns over depositor security, AIRBEA pointed out that Indian depositors continue to face "risks and uncertainties compared to their global counterparts". The association had earlier recommended increasing the coverage to Rs 10 lakh in 2018-19 when the issue was under discussion, but the government settled for Rs 5 lakh at the time. "While this offered some relief, official data as of March 2024 shows that although 97.8 per cent of deposit accounts are fully insured, only 43.1 per cent of the total deposit value (Rs 94.1 trillion) is covered under the current insurance scheme," said the AIRBEA communique.

 

 

"Common depositors, including senior citizens, pensioners, and women, prefer to keep their savings in banks despite the lure of high-return schemes. These deposits need protection from financial turbulence and external shocks," AIRBEA stated, adding that inflation and currency devaluation warrant a significantly higher insurance limit than Rs 10 lakh.  

 

'Govt should cover additional premium costs'

 

However, AIRBEA cautioned that raising the deposit insurance cover would increase the premium burden on banks, which may not be fair for well-regulated commercial banks with low failure rates. The association proposed that the government should cover the additional premium costs from the higher returns it receives from the banking sector, rather than passing the burden onto banks.  

 

Notably, the proposed revision in deposit insurance coverage is expected to bring further financial security to millions of Indian depositors. Meanwhile, policymakers are likely to weigh the implications on banks and the overall financial system.