Deposit Insurance Reform: Higher Cover, Risk-Based Premium, NBFCs
Why in the news
The government was considering a three-fold rise in deposit insurance cover, and the wider framework, including premiums and NBFC coverage, came under discussion.
Key facts
- Insurer: Deposit Insurance and Credit Guarantee Corporation (DICGC); present cover ₹5 lakh per depositor in all banks.
- History: February 2020 raised it from ₹1 lakh to ₹5 lakh.
- RBI Deputy Governor M Rajeshwar Rao said a growing economy and rising deposits call for periodic revision.
Risk-based premium
- Now: flat 12 paise per ₹100 a year.
- Idea: price premium by bank risk profile, like bond ratings, encouraging sound governance and market discipline.
- Risk: deposit flight from weaker banks could threaten stability, so the shift should be gradual.
NBFC coverage
- NBFC deposits are outside DICGC cover, yet they grew 20.8% in FY24 to ₹1.02 trillion.
- Stress at NBFCs can trigger panic withdrawals; the Capoor Committee (1999) discussed cover but nothing was decided.
| Country | Insured deposit share |
|---|---|
| Japan | 69.1% |
| US | 56.6% |
| Korea | 51.7% |
| India | 46.3% |
Way forward
- Review the limit regularly; phase in risk-based premiums; consider NBFC cover; raise governance in cooperative banks.