Bankers see no risk to small investors

November 24, 2012:

Bank deposits of Rs 38 lakh crore, accounting for 67 per cent of the total deposits, do not have cover from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as of September 2011.

The figure was Rs 32 lakh crore a year ago. This is based on data from the Reserve Bank of India.

The falling insurance cover is due to the rising proportion of high-value deposits. Bank depositors enjoy insurance cover on deposits up to Rs 1 lakh. This means that if a bank goes belly up, each account will still recover up to Rs 1 lakh from the Corporation.

Some experts feel that the situation calls for a revision in the insurance cover offered. The insurance limit of Rs 1 lakh per account was set way back in 1993. With inflation averaging 6.5 per cent in the last two decades, a Rs 1 lakh deposit then would equal Rs 3.3 lakh at today’s prices.

SMALL INVESTORS

Bankers, however, counter that this may not pose much of a risk to small investors, as most are likely to have deposits of less than Rs 1 lakh. In fact, banks have deposit accounts (savings and time deposits) numbering 107 crore. Of these, 99.6 crore deposit accounts, or 93 per cent, have less than Rs 1 lakh as balance.

The DICGC’s deposit insurance fund, which is supposed to meet these liabilities, had a Rs 30,000-crore balance by March 2012. While it added Rs 5,300 crore by way of inflows for the year, it met demands of Rs 287 crore towards insurance claims. This fund’s balances amount to 1.6 per cent of the underlying deposits insured.

Regional Rural Banks have the highest proportion of insured deposits at 74 per cent followed by co-operative banks with 62 per cent of the deposit value insured. Commercial banks, on the other hand, have only 30 per cent of the deposit value insured.

SBI TOPS

State Bank of India and its associate banks have 35 per cent of their deposits insured (in terms of value) making it highest among the commercial banking group. Private banks and foreign banks, on the other hand, have 23 per cent and 8.4 per cent, respectively, of their deposits insured because of a larger proportion of high-value deposits on their books.

The average deposit per account as of September 2011 has risen to Rs 53,000 per account up from Rs 7,700 when the Corporation increased the limit to Rs 1 lakh in 1993.

Among individual accounts, while public sector banks’ depositors have around Rs 40,000 per account, private banks have deposit per account in excess of Rs 51,000. Foreign banks’ deposit per account is more than Rs 2 lakh.