Bank deposits are growing but how well are they protected?

Bank deposits are growing but how well are they protected?

Sub: Economy

Sec: Monetary Policy

Context: 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.

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.

Deposit Insurance:

• Deposit insurance is a protection cover for deposit holders in a bank when the bank fails and does not have money to pay its depositors.
• This insurance is provided by Deposit Insurance and Credit Guarantee Corporation (DICGC) which is a wholly owned subsidiary of the RBI.
• DICGC insures all bank deposits, such as savings, fixed, current and recurring deposit for up to the limit of Rs 5 lakh per bank.
• DICGC covers depositors of all commercial banks and foreign banks operating in India, state, central and urban co-operative banks, local area banks and regional rural banks provided the bank has bought the cover from DICGC.
• The DICGC does not include the following types of deposits:
  • Deposits of foreign governments.
  • Deposits of central/state governments.
  • Inter-bank deposits.
  • Deposits of the state land development banks with the state co-operative bank.
  • Any amount due on account of any deposit received outside India.
  • Any amount specifically exempted by the DICGC with previous approval of RBI.