Protecting Depositors: Demand for Higher Bank Deposit (DICGC) Insurance Cover in India

[TechnoFinoTechnoFino is verified member.]

Hey TFCians,
There is a very important issue we should raise. Recently, after a lot of pressure, the government decided to cut GST rates and simplify processes for fellow Indians, a much-needed step that will ultimately increase consumption and boost the economy. Although we can’t say anything for sure, there are rumors that the government is planning to implement a 40% GST slab. Anyway, these are just rumors, we’ll have to wait for the actual picture.

But there is one important issue the government has been overlooking for a very long time.
I’m talking about the DICGC insurance cover on our bank deposits.

The government increased the cover from ₹1 lakh to ₹5 lakh in 2020, but compared to today’s scenario, even a child can understand that ₹5 lakh is far too low. There was news that the government might hike the DICGC cover to ₹12 lakh in the current financial year, but even that is not going to be enough.

In the US, the FDIC offers deposit insurance of $250,000 which equals about ₹2.18 crore INR at today’s exchange rate.
In the UK, the FSCS covers deposits up to £85,000 per financial institution, which equals about ₹1.006 crore INR today.



So, what’s stopping India and its government from offering a decent amount of cover to its citizens? At the very least, we need ₹1 crore INR worth of insurance per RBI-regulated bank.
People should come forward and raise this issue, as it is extremely important for protecting the interests of banking consumers and ensuring the financial security of all Indian citizens.

 

[Half Human]

Hey TFCians,
There is a very important issue we should raise. Recently, after a lot of pressure, the government decided to cut GST rates and simplify processes for fellow Indians, a much-needed step that will ultimately increase consumption and boost the economy. Although we can’t say anything for sure, there are rumors that the government is planning to implement a 40% GST slab. Anyway, these are just rumors, we’ll have to wait for the actual picture.

But there is one important issue the government has been overlooking for a very long time.
I’m talking about the DICGC insurance cover on our bank deposits.

The government increased the cover from ₹1 lakh to ₹5 lakh in 2020, but compared to today’s scenario, even a child can understand that ₹5 lakh is far too low. There was news that the government might hike the DICGC cover to ₹12 lakh in the current financial year, but even that is not going to be enough.

In the US, the FDIC offers deposit insurance of $250,000 which equals about ₹2.18 crore INR at today’s exchange rate.
In the UK, the FSCS covers deposits up to £85,000 per financial institution, which equals about ₹1.006 crore INR today.

View attachment 106987

So, what’s stopping India and its government from offering a decent amount of cover to its citizens? At the very least, we need ₹1 crore INR worth of insurance per RBI-regulated bank.
People should come forward and raise this issue, as it is extremely important for protecting the interests of banking consumers and ensuring the financial security of all Indian citizens.

A higher insurance will increase the inflow to SFB leading to higher lending rate and higher defaults and NPA's in the P&L of these SFB's leading to some turmoil in the banking system creating ripples even till the foot of the Magnum's.
This is the reason why this consideration is kept on hold for a while

 

[hender]

Hey TFCians,
There is a very important issue we should raise. Recently, after a lot of pressure, the government decided to cut GST rates and simplify processes for fellow Indians, a much-needed step that will ultimately increase consumption and boost the economy. Although we can’t say anything for sure, there are rumors that the government is planning to implement a 40% GST slab. Anyway, these are just rumors, we’ll have to wait for the actual picture.

But there is one important issue the government has been overlooking for a very long time.
I’m talking about the DICGC insurance cover on our bank deposits.

The government increased the cover from ₹1 lakh to ₹5 lakh in 2020, but compared to today’s scenario, even a child can understand that ₹5 lakh is far too low. There was news that the government might hike the DICGC cover to ₹12 lakh in the current financial year, but even that is not going to be enough.

In the US, the FDIC offers deposit insurance of $250,000 which equals about ₹2.18 crore INR at today’s exchange rate.
In the UK, the FSCS covers deposits up to £85,000 per financial institution, which equals about ₹1.006 crore INR today.

View attachment 106987

So, what’s stopping India and its government from offering a decent amount of cover to its citizens? At the very least, we need ₹1 crore INR worth of insurance per RBI-regulated bank.
People should come forward and raise this issue, as it is extremely important for protecting the interests of banking consumers and ensuring the financial security of all Indian citizens.

+1,

Govt Owned bank 🏦 (PSU banks) - Must have inbuilt protection cover equal to the same amount being kept in FD or Saving.
It may be of 10 lakhs or 10 crores.

(For Pvt/Others a max of 5-10% Cut in total money kept vs insurance).
Just to motivate people to keep money in Government banks.

Why to unnecessary load/utilise Bank bandwidth and resources, just for distribution of 5 lakh per Bank dicgc cover. If one or two Bank are sufficient for a person's need.

 

[ccdc]

govt can put any limit...its upto the banks to avail this service or not (or upto how much extent to avail this service)....while taking deposits banks advertise that our deposits are insured upto 5L.....that's a selling point for banks...banks have to pay a premium every year to get their deposits insured upto 5L....well if govt increases limit to 1cr....and assuming that banks go ahead and insure evey PAN for 1cr....premium will go up 20x (safe to assume)...where will the 20x premium come from....obv deposit rates will go down or some other charges/fees will go up drastically......bank will not reduce profits to cover this increase....maangne ko toh hum sab kuch maang sakte hai...thoda dimag ka bhi use karlo.....

example

As per HDFC Bank Financials, the Bank paid 2803 cr (excl gst) as dicgc premium in FY 25 for insuring 5L/PAN....lets say HDFC goes for the option of insuring 1cr/PAN....since insurance amt has increased 20x...premium for that insurance will also increase 20x....imagine HDFC Bank having to cough up additional 50000 cr (lets assume dicgc will give some discount to hdfc) for insuring 1cr/PAN....HDFC Bank PAT for FY 25 is 67k cr.....where do you think HDFC Bank will cough up this 50000 cr...best answer wins a prize from OP here demanding 1cr/PAN.

 

[Jack007]

banks go ahead and insure evey PAN for 1cr.

That’s not how the DICGC premium works. Banks pay the premium based on the actual amount of eligible deposits covered under the insurance scheme, not on a flat per-PAN or per-account basis. The premium is calculated as a percentage (currently 0.10% per annum) of the total insured deposits as reported by the bank at the end of each half-year. If the insurance limit is increased, the premium is recalculated based on the new total of insured deposits, not simply multiplied by the increase in the limit. So, the cost to the bank depends on the real insured deposit base, not just the maximum possible coverage for every account holder.

 

[ccdc]

That’s not how the DICGC premium works. Banks pay the premium based on the actual amount of eligible deposits covered under the insurance scheme, not on a flat per-PAN or per-account basis. The premium is calculated as a percentage (currently 0.10% per annum) of the total insured deposits as reported by the bank at the end of each half-year. If the insurance limit is increased, the premium is recalculated based on the new total of insured deposits, not simply multiplied by the increase in the limit. So, the cost to the bank depends on the real insured deposit base, not just the maximum possible coverage for every account holder.

i calculated based on total deposits at half year end as per financials.....my calc came to 3129 cr annual premium (at 12p per 100rs of deposit)...actual paid by hdfc is 2803 cr...so i have calculated approx 12% more premium.....remove 12% from 50k cr and you still have a sizeable number in excess of 35k cr...and this is just 1 bank....big question is....from where will the bank recover this extra cost from....deposit holders....casa accounts???....cannot increase loan rates since they are tied to rbi rates....

giving 1 cr insurance is not at all feasible for pvt/psu banks....for the govt....for the deposit holders....no one benefits from this....coz lets be honest...bulk of the deposits are with big private banks and psu's....the one's failing are co-op banks and rrb's...they dont hold much deposits anyways....

the only case where giving 1 cr ins would be beneficial is smaller banks (like co-op banks and rrb's) which give high interest rates...and these are the banks which generally go belly up due to poor credit underwriting....and if govt makes rules for these banks for 1 cr ins...then the govt is taking a very huge risk...coz of low premium collection and high risk of these banks going belly up....it should not happen that gov has to borrow money and pay off these depositors.

and if ppl want to park their money in risky co-op banks and rrb's for higher int rates.....why should govt pay for their greed...they want high rates...be ready for high risk as well...we have psu/pvt banks giving decent rates...deposit your money there...entire country is depositing in these banks...

 

[Lorddiesel]

Hey TFCians,
There is a very important issue we should raise. Recently, after a lot of pressure, the government decided to cut GST rates and simplify processes for fellow Indians, a much-needed step that will ultimately increase consumption and boost the economy. Although we can’t say anything for sure, there are rumors that the government is planning to implement a 40% GST slab. Anyway, these are just rumors, we’ll have to wait for the actual picture.

But there is one important issue the government has been overlooking for a very long time.
I’m talking about the DICGC insurance cover on our bank deposits.

The government increased the cover from ₹1 lakh to ₹5 lakh in 2020, but compared to today’s scenario, even a child can understand that ₹5 lakh is far too low. There was news that the government might hike the DICGC cover to ₹12 lakh in the current financial year, but even that is not going to be enough.

In the US, the FDIC offers deposit insurance of $250,000 which equals about ₹2.18 crore INR at today’s exchange rate.
In the UK, the FSCS covers deposits up to £85,000 per financial institution, which equals about ₹1.006 crore INR today.

View attachment 106987

So, what’s stopping India and its government from offering a decent amount of cover to its citizens? At the very least, we need ₹1 crore INR worth of insurance per RBI-regulated bank.
People should come forward and raise this issue, as it is extremely important for protecting the interests of banking consumers and ensuring the financial security of all Indian citizens.

GS Bank , a Thai bank offers unlimited money protection.

 

[Jack007]

from where will the bank recover this extra cost from....deposit holders....casa accounts???

Yeah, they would reduce the interest rates by the premium they pay. You'd earn 0.1% less p.a. but everything will be insured

 

[ccdc]

Yeah, they would reduce the interest rates by the premium they pay. You'd earn 0.1% less p.a. but everything will be insured

dont think rates will go down by 0.1%....0.1% of 25 lakh cr is 2500 cr...we're taking about 35k-40k cr min here...approx 1.5+% less rates than normal....then again imagine already low int rate environment...and 1.5% less in that....ppl will anyways move away from deposits....this will reduce the volume of deposits in the system leading to lower premium collections leading to more risk for the govt...and yes...the move away from deposits will bring money into stock markets leading to a bubble in the markets.