HYDERABAD: Banks may be worried about slowing deposits growth, but it’s the depositors who should be paying attention. Insurance cover for bank deposits fell to 30 per cent as on March 2018, from a mighty 76 per cent in March 1996. Just a decade ago, it stood at a respectable 60 per cent, but has been steadily declining.
Interestingly, over 90 per cent of all bank accounts are covered under the Deposit Insurance and Credit Guarantee Corporation Act (DICGC), but the downward trend is stark in terms of value as the insurance limit — currently at Rs 1 lakh per depositor per bank — was last revised 25 years ago.
“There will be a large number of depositor accounts that have less than Rs 1 lakh, so the coverage in terms of accounts covered is high, but the amount as a percentage of total assessable deposits will be less. There should be a revision in insurance limit to cover a larger portion of total deposits,” said Anil Gupta, Vice President, Sector Head - Financial Sector Ratings, ICRA Ratings.
In 1962, when insurance cover was introduced, the amount was limited to Rs 1,500 per depositor, but it has been revised five times since. The last revision was done in 1993, to Rs 1 lakh, and while deposits grew, the insurance limit remained the same.
“If you look at inflation over the last 30 years, the deposit insurance amount should have been revised substantially. There should be a mechanism where the insurance amount keeps getting revised,” Gupta explained.
“It should at least cover 60-70 per cent in value terms. Whether that amount comes to Rs 5 lakh or Rs 20 lakh needs to be worked out by banks,” he added. While assessable deposits with insurance cover in public sector banks is over 30 per cent, worryingly, among private sector lenders this figure is nearly half at 18 per cent.
Moreover, India’s coverage limits vary markedly from other countries, especially when other government guarantees are accounted for, data from the World Bank shows.For instance, while India’s Rs 1 lakh cover translates to $1,613, statutory coverage limits are as high as $95,000 in Japan, $1.6 lakh in Indonesia, $2.5 lakh in the US, $15 lakh in Thailand.
Unbelievably, countries like Turkmenistan and Uzbekistan even offer blanket guarantees on deposits!
Deposit insurance prevents large-scale depositor runs, while the financial safety net restores consumer confidence. Only a few countries, such as Iceland, broke their promises on insured deposits during the 2008 financial crisis or imposed substantial losses on uninsured depositors.