"If we adjust inflation since 1993, deposit insurance
requires a substantial jump. Where the amount should be — that is obviously
open for debate but it should at least cover 60-70 per cent of the total
deposits," said Kuntal Sur, partner, financial services (risk and
regulation leader), PwC India. "I don't see 90-100 per cent of the overall
deposits being covered."
Under the current Deposit Insurance and Credit Guarantee
Corporation Act, 1961, any amount of more than Rs 1 lakh in a deposit account could be forfeited in
the event of a bank failure. Under the proposed law, a resolution corporation
would be set up and it in consultation with the Reserve Bank of India would fix
the threshold for deposit insurance.
This suggests that the government is considering increasing
the insured amount in deposits since the compensation was last fixed almost 25
years ago. RBI data show that only about 30 per cent of the outstanding
deposits by value — totalling about Rs 30 lakh crore — was insured as of March
2017.
As of March 2016, 97 per cent of deposit accounts had Rs 15
lakh or less. This amounted to about 45 per cent of the total deposits by value
in the banking system.
The balance 55 per cent was from accounts having more than Rs 15 lakh. Of this group, 38 per
cent had more than Rs 1 crore.
"Rs 1 lakh deposit insurance is hardly anything in
today's context, and it's been nearly 25 years that amount was revised,"
said Karthik Srinivasan, group headfinancial sector ratings, ICRA.
"Keeping in mind inflation, cost of living, I
personally believe Rs 5 lakh is a respectable number." The proposed
Financial Resolution and Deposit Insurance Bill is expected to seek to raise
the minimu m threshold of deposit insurance from Rs 1 lakh. The final amount
will be decided after a consultation between the RBI and the resolution
corporation.
Currently, banks have to pay a premium of about 10 paise per
Rs 100 insured. Any hike in the threshold would raise the amount of premium
that banks will have to shell out. "But, even under the new regime, you
can expect that the cost of deposit insurance for banks should go up
ideally," said Sur.
However, the premium cost could also be charged to the
depositors. "Whether the banks should bear the premium amount or should
the charges be passed on to the deposit holders is a debatable topic. As of now
it is been borne by the banks," said Srinivasan.