Insurance coverage on deposits lowest in India

As Punjab and Maharashtra Co-operative (PMC) Bank fraud brings the focus back on increasing insurance coverage on bank deposits, a cross country data set suggests India’s deposit insurance coverage per person is one of the lowest at Rs 1 lakh, which is less than 0.8 times the per capita income of Rs 1.26 lakh.

Deposit insurance is a financial safety net provided by the government to each depositor in case a lender goes bankrupt. In India, only Rs 1 lakh per depositor is provided in case a bank fails. The rest of the deposit amount is forfeited.

The International Monetary Fund (IMF) provides for one or two-times per capita GDP as the general rule for deposit insurance coverage. However, insurance around the world vary widely in the amounts and types of coverage provided.

In India deposit insurance coverage is way below the BRICS countries, data from the State Bank of India suggests. Among BRICS countries, Brazil’s insurance coverage is 7.4 times the per capita income of its citizens. Brazil’s insurance coverage is at $64,025 per person while the per capita income is $8,650. Russia has an insurance coverage of 2.2 times.

Among developed countries, in the USA, insurance coverage is 4.4 times the per capita income, France, 3 times, Australia,3.7 and UK, 2.8 times.

Even when compared with countries having similar per capita income, India is way behind. Laos and Ukraine with per capital incomes of a little more than India have 2.23 times and 5.46 times insurance cover per person, respectively. In India, Rs 1 lakh per depositor is provided for deposits of commercial banks, regional rural banks, local area banks and co-operative banks. The rest of the deposit amount is forfeited in the event of a bank failure.

Soon after the PMC Bank failure, the SBI called for revising the limit, which it said had outlived its shelf life. The SBI said there was a dire need to revisit the insurance coverage of the bank deposits as over the years the percentage of assessable deposits had declined from a high of 75% in 191-82 to 28% in 2017-18.