Reserve Bank of India Insurance Coverage: The Reserve Bank of India (Reserve Bank of India) is considering periodic adjustments to the deposit insurance cover limit, currently set at Rs 5 lakh, to take into account factors such as inflation, growth in deposit values and rising income levels, Deputy Governor M Rajeshwar Rao announced.
Speaking at the IADI Asia Pacific Regional Committee International Conference 2024, organised by the Deposit Insurance and Credit Guarantee Corporation (DICGC), Rao stressed the need to ensure that insurance coverage remains adequate in the face of evolving economic conditions. As of March 31, 2024, 97.8 per cent of bank accounts in India were fully covered, well above the international benchmark of 80 per cent.
Rao noted that while the current scope of coverage is satisfactory, challenges lie ahead. “India is one of the fastest growing large economies globally, and this robust growth is expected to persist. As the economy expands and formalises, we are likely to see a substantial increase in primary and secondary bank deposits. This could create a mismatch between the required insurance reserve and what is currently available,” he said during his speech on August 14.
Currently, India’s deposit insurance covers up to Rs 500,000 per depositor per bank. Rao suggested that given the various factors influencing deposit growth, including inflation and economic expansion, a periodic increase in this coverage limit might be necessary. However, this would require additional funding and strategic adjustments to ensure the insurer’s financial stability.
Rao also addressed the challenges of implementing risk-based premium (RBP) due to the diverse nature of the Indian banking sector, which ranges from global commercial banks to smaller cooperative banks. He noted that while RBP could help manage risk more effectively, it could also lead to deposit runs from riskier institutions.
“Since innovations in banking products introduce new risks, the adoption of risk-based deposit insurance coverage could enhance the financial soundness of deposit insurance and improve the adaptability of the system to changing financial conditions,” Rao concluded, stressing the importance of a thorough examination of this option.
(with PTI inputs)
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