Considering its financial position and the interest of the country’s banking system as a whole, the Deposit Insurance and Credit Guarantee Corporation (DICGC) may raise the insurance limit from existing Rs 5 lakh, the finance minister Nirmala Sitharaman informed Parliament on Monday.
Total deposit insurance cover under the DICGC Act is up to Rs 5 Lakh per depositor for deposits held by the account holder in “the same capacity and the same right” of all the deposits such as savings, fixed, current, recurring etc. kept at all the branches of a bank taken together.
With the prior approval of the government, DIGC had raised deposit insurance coverage limit Rs 1 Lakh to Rs 5 Lakh with effect from February 4, 2020.
“DICGC considers its financial position and the interest of the financial system of the country to make a suitable proposal to the government for enhancing the deposit insurance limit as per section 16(1) of the DICGC Act,” Sitharaman told Lok Sabha in a written reply.
All commercial banks, small finance banks, payment banks, regional rural banks and local area banks and all co-operative banks, namely, primary (urban) co-operative banks, state co-operative banks and district central co-operative banks are covered under the deposit insurance scheme.
FE reported recently that the Centre is considering doubling the insurance cover for bank deposits from Rs 5 lakh to assuage the concerns of depositors, especially senior citizens, and strengthen the trust in the banking system. DICGC may increase fees to some extent for that.
As on March 31, 2024, 97.8% of the total number of eligible/assessable accounts were fully covered. The remaining 2.2% of the accounts were partially covered up to the coverage limit of Rs 5 lakh. The coverage ratio in terms of value of deposits, termed as insured deposit ratio (IDR), was 43.1% as on March 31, 2024.
While the proposed increase in deposit insurance limit is not known, however, under various scenarios, whereby IDR increases to 47-66.5%, rating agency ICRA estimates the banks’ profit after tax to be adversely impacted by Rs 1,800-12,000 crore annually, translating into a moderation of return on assets (RoA) by 1-4 basis points (bps) and return on equity (RoE) by 7-40 bps. Additionally, if the insurance premium is increased, the cumulative impact on RoA and RoE will be 3-7 bps and 27-68 bps respectively.