As much as two-thirds of the bank deposits — a whopping Rs 32.2 lakh crore — have no insurance cover, RBI data for March 2011 show.
The proportion of deposits covered by insurance has dropped in the last ten years. Only 35 per cent of the total deposits outstanding was insured by March 2011 compared to 70 per cent ten years ago.
Bank deposits up to Rs.1 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) against bank failure. This ‘safety factor' is one of the reasons why bank deposits are so popular with Indian households. The proportion of deposits covered has dropped mainly because more people are holding deposits of over Rs 1 lakh. Last year, 85 per cent of the total bank deposits by value were for above Rs 1 lakh each. Only half the deposits were in this category in 2002.
With more than Rs 32 lakh crore of deposits uninsured, does that pose a systemic risk? No, say bankers we spoke to. One, they point out that the uninsured deposits include bulk deposits by corporates/trusts. These may not need the protection that retail depositors require.
Failures unlikely
Two, regulatory oversight of banks by the RBI is so stringent that bank failures are quite unlikely.
“We have never witnessed a scenario of liquidation of a commercial bank. The RBI manages systemic risk by taking pro-active steps before the failure, by asking existing well run banks to take over the weak/potential failure cases. In other cases, banks have been asked by the RBI to infuse additional capital,” says Mr D. Ravishankar, Founder-Director, Brickworks Ratings.
Banks also point out that the number of deposit accounts insured is at a fairly comfortable proportion at 92 per cent.
Smaller deposits
A larger proportion of the public sector bank deposits enjoy insurance cover, as their deposit sizes are smaller.
While the latest data are not available, according to DICGC, in September 2009, around two-thirds of deposits in terms of value were insured for public sector banks compared to 21 per cent for private sector peers.
(with inputs from N.S. Vageesh)