Is India's bank deposit sufficient? A reality test

Copyright © HT Digital Streams Limit all rights reserved. Money Soumik Bhusan, Pratibha Kumari 4 min Read 22 Apr 2025, 06:36 PM ist India’s deposit -insurance coverage is below the lowest worldwide. Even within the Brics block is India Trails: Cover is around £ 42 Lakh in Brazil and £ 12 Lakh in Russia. (Beeld: Pixabay) Summary India’s Deposit Insurance Scheme provides wide coverage by number, but not by value – which jeopardizes major depositors. Is the safety net of the RBI still suitable for household savings? Bank deposit insurance is a fundamental safety net designed to protect depositors – the primary capital providers to banks. It plays an important role in maintaining public trust and ensuring financial stability, especially during banking crises. Although the concept of deposit insurance is reassured in theory, practical implementation in India often falls short, leaving the most important gaps in the protection of deposit. This article examines the evolution of India’s deposit insurance framework, its restrictions and whether recent policy measures are truly proactive – or simply reactive reactions to emerging risks. Read it | £ 2 trillion more in deposits than loans in 2024 “> Banks added more than £ 2 trillion more in deposits than loans in 2024 India was the second country in the world, to the US, to set deposit insurance, and did this in 1962. The deposit insurance and credit guarantee (dicgc), a subsidiary of the reserves bank or india (RBI). Bank. The lakh insurance shells. Why you should protect bank deposits and how to do them, deposit limits and investor confidence a recent report by the State Bank of India (SBI) shows that India’s deposit insurance coverage is among the lowest worldwide. Even within the Brics block is India Trails: Cover is around £ 42 Lakh in Brazil and £ 12 Lakh in Russia. The issue is not only the adequacy of the insurance limit, but also the ability to establish confidence in the deposit spectrum. Historically, the increase in India’s deposit insurance limits was reactive – often after financial crises. The most recent hike in February 2020 came in the aftermath of the Punjab and Maharashtra Co -operative Bank (PMC Bank) crisis. Similarly, the 1993 review of £ 30,000 to £ 1 Lakh followed the collapse of Bank of Karad. Read it | Mint Primer | Collaborative Bank Crisis: Has something changed since the situation of PMC in 2019? The urgency of reconsidering deposit insurance is underlined by a shift in domestic saving behavior. Between 2021 and 2024, deposits grew from 28% to 41% of the total financial assets of domestic homes – despite the rise of alternative investment roads such as shares and mutual funds. This trend reinforces the centrality of bank deposits in the financial ecosystem of India and emphasizes why the strengthening of deposit protection is critical. So far, changes to insurance boundaries have aimed at calming public anxiety and restoring confidence. But the report of the RBI about another potential increase raises a new set of questions. Is it an attempt to attract deposits in a competitive financial landscape? A response to the collapse of the new Indian cooperative bank? Or a real forward -looking move to account for the rising savings and systemic risk? While raising the insurance cap can increase the deposit’s confidence, it also poses the risk of moral danger – where both banks and depositors can take greater risks under the assumption of a safety net. Depositors may pay less attention to the financial health of a bank, and banks may be tempted to pursue risk or investment strategies. Read also | The deposit insurer of India is ultimately too much to charge commercial banks, deposit insurance must be more than just a backup against failure. It must be a robust, well -calibrated mechanism that strengthens confidence about the banking system. Policymakers now have to decide whether they should simply do existing defects – or to reconsider the philosophy that underlies the Indian deposit insurance regime. Soumik Bhusan is associate professor to Tapmi Bengaluru. Pratibha Kumari is assistant professor to Tapmi Bengaluru. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Bank Deposits #Deposit Insurance Mint Specials