Savers demand higher insurance cover

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Savers, spooked by concerns the global credit crunch may squeeze Indian lenders, are demanding the government increase deposit insurance that was last raised in 1993. In the past five years, household savings in the country nearly doubled to Rs 9.85 lakh crore as the country’s economy boomed.

Indian officials haven’t followed their counterparts in Europe, the US and Australia in raising guarantees, arguing that the nation’s banks are sound. “Investors are panicking,” said PGR Prasad, an adviser at Bangalore-based Wealth Solutions Pvt, which provides financial services to companies. “It doesn't make any difference whether it is in a public sector bank, or a private sector bank, deposits aren’t fully guaranteed.”

Words may not be enough to calm consumers, said Yashwant Sinha , a lawmaker from the Opposition Bharatiya Janata Party, who served as finance minister in the previous government. “It’s no comfort for people who have larger sums of money,” he said. “There is a case for increasing deposit insurance.” In 1962, India became the second country after the US to insure deposits following a series of bank failures, according to the RBI web site.

The Deposit Insurance and Credit Guarantee Corp, owned by the Reserve Bank of India, increased the insurance limit to Rs 1,00,000 in 1993.

Since then, insured deposits have risen almost 11-fold to Rs 18 lakh crore, according to the agency's annual report. The number of accounts increased to 1.03 billion from 354.3 million. The limit could be raised if savers paid a premium to insure deposits beyond Rs 1,00,000, said Prakash Apte, board member, Deposit Insurance and Credit Guarantee Corp. “There’s no way government could provide free insurance to all this,” said Apte, professor of economics and social science at the Indian Institute of Management, Bangalore. “Start charging an insurance premium and any amount can be insured.”

Such concerns are unfounded, said Sujan Hajra, chief economist at Mumbai-based Anand Rathi Securities Ltd. “We haven’t had an incident for decades where a depositor was not saved during bank failures,” he said.