Fixed deposits (FD) with banks are the most common investment.

But how well protected are FDs? It turns out that only 44 per cent of bank deposits were covered by insurance as of September 2023.

And this proportion has been on a decline since 2021, per RBI data. In September 2022, 49 per cent of deposits were insured down from 50.9 per cent in September 2021 and 2020.

Rising interest

With interest rates rising, deposits have grown. On an absolute basis, the year-on-year growth in value of insured deposits was 3.4 per cent from September 2022 to September 2023. The rise was higher in previous years at 6.4 per cent from 2021 to 2022, and 10.9 per cent from 2020 to 2021.

In case a bank collapses, deposit insurance protects customers from losing all their money.

In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI, is the entity responsible for deposit insurance.

The insurance cover for deposits was earlier ₹1 lakh per depositor per bank and this was increased to ₹5 lakh in February 2020.

The number of banks registered with DICGC deposit insurance has also been dropping in the past three years. It was 2,058 in FY21, 2,040 in FY22, dipped to 2,026 in FY23, and further 1,997 in FY24. The decline in insurance cover for deposits is seen across all categories of banks.

As of September 2023, rural and co-operative banks had the highest coverage at 82 per cent and 65 per cent.

Analysts and bankers note that the current insurance cover of ₹5 lakh needs revision with growing deposits and rising inflation.

Vijay Kuppa, CEO, InCred Money, said: “A viable solution to this problem would be DICGC revising coverage in every 3 to 5 years, in line with the inflation, thereby maintaining real value of the coverage.”

In terms of deposits insured to per capita GDP, India is still on a par with European countries though behind the US, China and Brazil, he said.

Comparable globally

Giving a talk in Rome last week, RBI deputy Governor Michael Debabrata Patra had said that the size of the Deposit Insurance Fund, measured by its ratio to insured deposits, at 2.02 per cent, is comparable with the global median.

“The Corporation has targeted the achievement of a ratio of 2.5 per cent by March 2028,” he added.

During FY24, the claims settled by the Corporation totalled ₹1,431.5 crore. Claims are significantly higher in cooperative banks and rural banks especially in Maharashtra and Gujarat owing to stress in capital adequacy in such banks.

The writer is an intern with businessline

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