Deposit insurance: what you didn’t know

Deposit insurance: what you didn’t know: Here are some infrequently asked questions about deposit insurance, answered


February 22, 2016
Needed, higher deposit insurance cover
This refers to Aarati Krishnan’s article “Deposit insurance: what you didn’t know” (The Hindu Business Line, Real returns, February 22). The article brings together in one place several FAQs on deposit insurance with answers explaining factual position. The article will serve a larger purpose, if policy makers take cognizance of the constraints within which DICGC is functioning today and initiate moves that will help the organisation recast its vision and mission to conform to the present scenario in which banks and financial institutions are working in India today.
A real makeover for DICGC may have to factor in:
(i)               The resources at DICGC’s command at Rs50,000 crore is not small. But, it is inadequate to meet the business expansion the corporation may have to think of, if the confidence deposit insurance should instil among depositors is to be restored. DICGC may also have to revisit credit guarantee, a function it exited some time back, in the changed environment.
(ii)            Since 2014, there has been some effort to professionalise DICGC. This need to be taken forward.
(iii)          The anomalous situation arising from commercial banks meeting the cost of the inefficiency of cooperative banks will have to be rectified.
(iv)          The corporation should apply its mind as to whether continuing the level of deposit insurance should be retained at a low of Rs one lakh. Perhaps the threshold should be raised to a level to provide cover for at least 50 per cent of bank deposits.
(v)      Corporation could consider expanding its ambit to all financial institutions regulated by RBI which are accepting deposits from public. This may need differential rates of premia and coordination with regulatory and supervisory arms of RBI.
M G Warrier, Mumbai


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