Amid the crisis in Punjab & Maharashtra Co-operative Bank (PMC Bank) that had created panic among a section of depositors, prompting the Reserve Bank of India (RBI) to assure the safety of the Indian banking system, a report by the State Bank of India (SBI) has called for a re-look at the deposit insurance scheme.
“The current upper limit of ₹1 lakh per depositor, we believe, has outlived its shelf life and there is a need to revisit it,” SBI said in a report.
The report suggested a two-tier system of deposit insurance — one for savings account deposit and the other for fixed deposits.
At present, deposits of up to ₹1 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation.
“The DICGC coverage should be revised and bi-furcated into two categories: 1) desirable coverage of at least ₹1 lakh for SB deposits (around 90% of the total SB accounts) and 2) desirable coverage of at least ₹2 lakh for term deposits (around 70% of the total TD accounts),” the report said.
The report also suggested a separate provision for senior citizens. “This revision in DICGC coverage becomes all the more desirable in the Indian context, where senior citizens/retired people have no social security in place and mostly keep fixed deposits for earning interest income,” it said.
The report compiled data to show that deposit insurance coverage in India was 0.9 times of per capita income while in countries like Brazil and Australia it is at much higher level at 7.4 times and 3.7 times respectively.
The report suggested depositors get an incentive to spare a part of their total deposits to buy bank bonds that provide guaranteed coupon rates on a half-yearly basis and are tax-free.
“This will herald a new paradigm in the Indian deposit banking sphere, since tax-free and guaranteed payments of a certain income will do much to encourage depositors to come forward with offers to provide a part of their savings in exchange for the shares in the banks,” it said.