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Introduction
The All India Reserve Bank Employees Association (AIRBEA) has urged the government to cover the additional premium costs if it proceeds with the proposal to increase deposit insurance coverage. The union argues that commercial banks are well-regulated, and their failures are rare, making it unfair for banks to bear the burden of higher insurance premiums.
Key Highlights
AIRBEA’s Stand on Higher Deposit Insurance Coverage
- The government is considering raising the deposit insurance cover beyond the current ₹5 lakh limit, set by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
- AIRBEA suggests that the additional premium for this increased coverage should be paid by the government using higher returns from the banking sector.
- The association argues that banks are already paying substantial dividends to the government, and imposing additional costs on them would be unjustified.
Background: Why Is the Govt Considering a Higher Cover?
- The discussion around increasing deposit insurance gained momentum after the New India Cooperative Bank crisis, where the RBI imposed restrictions on loan issuance and deposit withdrawals.
- Currently, deposits up to ₹5 lakh are insured under the DICGC scheme.
- This limit was raised from ₹1 lakh to ₹5 lakh in February 2020, following the Punjab & Maharashtra Cooperative Bank crisis.
Previous Recommendations and Coverage Insights
- In 2018-19, AIRBEA had recommended raising deposit insurance to ₹10 lakh, but the government only increased it to ₹5 lakh.
- As of March 2024:
- 97.8% of deposit accounts are fully protected under the current ₹5 lakh coverage.
- However, in terms of value, only 43.1% of total deposits are insured.
- AIRBEA now argues that, considering inflation and currency depreciation, the revised insurance amount should be substantially higher than ₹10 lakh.
Conclusion
While AIRBEA welcomes the proposal to increase deposit insurance coverage, it insists that banks should not be burdened with the additional premium cost. The union suggests that the government should fund this increase, given its high returns from the banking sector. If implemented, this move could provide greater financial security to depositors across commercial banks, cooperative banks, and NBFCs regulated by the RBI.
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