Deposit cover should be doubled: SBI Report – Economic Times, The Times of India

MUMBAI: The Deposit Insurance and Credit Guarantee Corporation orDICGCshould double the limit for deposit cover from Rs 1 lakh to Rs 2 lakh per depositor, a report by State Bank of India said.

“The coverage should be revised and bifurcated into 2 categories. One for savings Bank account holders. The desirable coverage should be at least Rs 1 lakh for Savings bank deposit accounts which would cover 90 per cent of the total savings deposits. For term deposits the desirable coverage should be at least Rs 2 lakh covering around 70% of the total term deposit accounts ”said SK Ghosh, group chief economist at the State Bank of India in a report. “There should also be a separate provision for senior citizens”. The suggestion assumes significance aganst the back drop of crisis at PMC Bank

The current limit for deposit cover in case of a bank failure to repay depositors of Rs one lakh per depositor was last revised in 1993. Studies suggest that since 1993, there has been a paradigm shift in the profile of customers and the conduct of business by banks. In particular, over the years, the level of insured deposits as a percentage of assessable deposits has declined from a high of 75% in FY ’82 to (% in FY ‘) . Given this backdrop, we believe, there is a dire need to revisit the insurance coverage of the bank deposits.

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. Apart from this, it is also suggested that depositors should 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, the report said.