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Consider direct payments, periodic review to improve deposit insurance: RBI | Financial news
In India, deposit insurance is mandatory for all banks including foreign banks
Representative imageAbhijit Lele Bombay
Faster settlement of deposit insurance claims by making direct payments to customers can increase coverage and lead to improved services, according to a study by Reserve Bank of India (RBI) officials. The country’s deposit insurance system has evolved over the years thanks to an improved coverage limit and deposit insurance fund.
Deposit insurance, which has existed in India for over 60 years, is crucial for financial stability and depositor protection. The system has been adopted by many jurisdictions around the world. There has been a steady expansion of its mandate, reduction in the time required for payments, a shift to risk-based premiums and stability in the level of insurance coverage.
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In India, deposit insurance is mandatory for all banks, including foreign banks. Currently, 1,997 banks are covered, including 140 commercial banks and 1,857 cooperative banks. This is the largest number of deposit-taking institutions covered by deposit insurance in the world, second only to the US.
On a per-account basis, the coverage ratio in India is 97.9 percent, according to a speech by RBI Deputy Governor Michael Debabrata Patra at the International Association of Deposit Insurers meeting in Rome, Italy, on June 14. the coverage limit is Rs 5 lakh (about US$6,000) per bank depositor.
The RBI paper states that the reserve ratio, which is the ratio between the deposit insurance fund (DIF) and insured deposits, is expected to increase steadily in the near future.
To improve the Indian deposit insurance system, the article called for faster settlement of claims through direct payments to depositors, proactive management of treasury through an appropriate mix of instruments and reduction of interest rate sensitivity.
A periodic review of deposit insurance coverage and raising public awareness about deposit insurance through financial education and addressing gaps through appropriate communication strategies were also important, he said.
Modernizing physical and digital infrastructure was crucial for security and efficiency.