Current Rs 5 Lakh Limit Seen as Inadequate
New Delhi: India’s deposit insurance framework requires urgent revision, as the current coverage limit of Rs 5 lakh is considered insufficient in today’s economic environment. A report by CareEdge Ratings suggests that the ideal range for deposit insurance should be between Rs 5.2 lakh and Rs 21 lakh, based on an analysis of various models to determine the optimal protection level.
Recent Bank Crisis Sparks Fresh Concerns
The debate over deposit insurance has gained renewed attention following the Reserve Bank of India (RBI)‘s recent decision to supersede the board of New India Cooperative Bank due to financial and governance concerns. The Mumbai-based bank has been barred from accepting new deposits and issuing loans for at least six months, creating panic among customers.
The situation worsened when the bank’s former CEO was arrested for allegedly embezzling Rs 122 crore, highlighting the broader governance risks in India’s cooperative banking sector.
India Lags Behind Global Standards
When compared internationally, India’s deposit insurance coverage remains significantly lower. In US dollar terms, the Rs 5 lakh ceiling offers minimal protection, particularly for individuals who rely on bank deposits as their primary savings vehicle.
Call for Urgent Reforms
With growing concerns over financial stability and depositor security, experts believe that an increase in deposit insurance limits is necessary to restore confidence in the banking sector. The recommendations by CareEdge Ratings call for serious policy discussions to ensure better protection for bank customers in India.
