Is your deposit safe in your bank account? Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao has suggested a periodic revision and increase in the current limit of Rs 5 lakh on the insurance coverage applicable to deposits in banks. The country’s economic growth and formalisation can lead to an increase in bank deposits in the system and hence necessitate the need for higher insurance coverage, said Rao. 

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As per banking laws in India, a uniform deposit insurance cover of Rs 5 lakh per depositor is applicable to money kept in commercial banks.

According to Rao, more funds will be required, making it important to consider the right options for increasing the insurance cover on deposits.

The coverage and security is satisfactory at the moment, but there may be challenges in the future, said Rao. 

"Besides, digital deposit products should also be brought under the purview of the uniform insurance coverage," he suggested. 

Here are some other key things pointed out by the RBI deputy governor: 

  • It is not possible to provide full insurance coverage to all depositors 
  • However, this needs to be discussed for individuals holding small amounts in banks and senior citizen depositors should be protected 
  • It is important to periodically review and raise the cover in order to avoid any issues in the future
  • As banks come up with new deposit products, risk-based premiums can strengthen the insurance system in this regard

Under the current deposit insurance system in the country, if a bank collapses, depositors are paid their dues from the insurance fund. 

According to the findings of a survey by the International Association of Deposit Insurers (IADI)survey, deposit insurance coverage covers 43.1 per cent of deposits in the country. As of March 31, 2024, 97.8 per cent bank accounts are completely covered under the insurance framework, which is higher than 80 per cent globally.