Should the Government Bear the Cost of Increased Deposit Insurance? | AIRBEA’s Stand

Should the Government Bear the Cost of Increased Deposit Insurance? | AIRBEA’s Stand

?? Protecting Depositors, But At What Cost?

As India’s banking sector evolves, the security of depositors’ money remains a critical concern. The recent proposal by the government to increase deposit insurance coverage has sparked a debate, with the All India Reserve Bank Employees Association (AIRBEA) advocating that the government, not banks, should bear the additional premium cost.

?? Understanding Deposit Insurance in India

Currently, bank deposits up to ?5 lakh are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). This limit was raised from ?1 lakh to ?5 lakh in 2020 after the Punjab & Maharashtra Cooperative (PMC) Bank crisis. However, given rising inflation and financial uncertainties, discussions are underway to further enhance this coverage.

The New India Cooperative Bank crisis, which resulted in loan restrictions, withdrawal limits, and board supersession by RBI, has further fueled the urgency to reconsider deposit insurance.

?? AIRBEA’s Proposal: Govt Should Pay, Not Banks

AIRBEA strongly believes that increasing the deposit insurance limit should not financially burden well-regulated commercial banks. Instead, they propose that the government should fund the additional premium using the significant returns it earns from the banking sector.

?? Key Arguments by AIRBEA:

? Banks are already contributing significantly to government revenues through taxes and dividends.

? Well-regulated banks rarely fail, so additional premiums should not be imposed on them. ? 97.8% of deposit accounts are fully protected under the current ?5 lakh cover, but in terms of value, only 43.1% of total deposits are insured—indicating the need for an increase. ? Considering inflation and rupee depreciation, the coverage should ideally be above ?10 lakh.

?? The Big Question: Who Should Pay?

While enhancing deposit insurance provides greater security to depositors, the debate remains—should banks bear the extra premium, or should the government step in?

• If banks pay, it could impact their profitability, leading to potential cost-cutting or reduced lending.
• If the government funds it, it ensures depositor safety without straining banks, but it raises concerns about fiscal responsibility.

?? What’s Next?

The Department of Financial Services (DFS) is evaluating the feasibility of this proposal. If accepted, this move could benefit millions of depositors across commercial banks, cooperative banks, and NBFCs regulated by the RBI.

?? What are your thoughts? Should the government fund increased deposit insurance, or should banks take responsibility? Let’s discuss! ????

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