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New FRDI Bill Clause may ensure double protection for bank deposits


New FRDI Bill Clause may ensure double protection for bank deposits

The Indian banking sector is in the throes of several long-standing positive changes that could elevate it to a different growth level in future years. The Central Government and Reserve Bank of India (RBI) have been striving to take several measures to inject more liquidity back into the system, drive burgeoning consumer sentiment, consolidate economic growth and at the same time, focus on improving customer service and experience as far as public sector banking is concerned.

There was some speculation earlier about the FRDI (Financial Resolution and Deposit Insurance) regulation only having provisions for insuring just Rs. 1 lakh each for depositors who keep their money saved in Indian banks. This was driven by anxieties related to future crashes if possible although in practice it is far from possible since the Government and RBI have always taken measures to stabilize banks with liquidity infusion, mergers and other pro-active decisions that have safeguarded depositor interests. Some more good news is on the horizon as well. A new FRDI Bill clause may enable double security for banking deposits in the future.

Government mulling new FRDI law for doubly securing deposits

The Central Government is considering a move to increase insurance coverage for bank deposits in India. This could be increased to anywhere around Rs. 2-3 lakh as compared to Rs. 1 lakh presently. The increase may be implemented under the FRDI (Financial Resolution and Deposit Insurance) regulation as per reports. The Union Finance Ministry is considering whether the minimum amount insured can be allowed for withdrawals in case of depositors of a banking institution that is troubled/stressed although continuing market operations.

Depositors, as per the current regulation, are entitled to Rs. 1 lakh as the insured amount when the banking institution in question is liquidated. The latest proposal comes in a scenario where Punjab and Maharashtra Co-Operative Bank has run into some rough weather and customers have been asking for withdrawals of their entire savings along with the lifting of daily restrictions on withdrawals.

More on this development

The insurance coverage for deposits may be doubled at least and some countries also have a regulation that such coverage should be double of the per capita GDP as per experts. This is one area which is also being considered intricately by the Union Finance Ministry. As a result, the insurance coverage for every deposit may go up to Rs. 3 lakh and a decision will be taken soon on this aspect. The per capita GDP of the country stood at Rs. 1,42,719 for FY2018-19. Some experts feel that the present insurance coverage of Rs. 1 lakh adheres to the 80-20 guideline although this global paradigm may not fully apply to the country. Unlike Western countries, the high number of accounts with full coverage is majorly due to higher numbers of smaller accounts for people, particularly under the Jan Dhan scheme. The deposit for every customer is usually on the lower side in these cases.

Several reports have given India a ranking of 102 out of 115 backed on the 2018 International Association of Deposit Insurers Survey. The Report of the Committee on Customer Service in Banks by the Reserve Bank of India (RBI) had already recommended the increase in insurance coverage per deposit to a minimum of Rs. 5 lakh in order to attract more customers to the Indian banking system. Whatever be the ultimate insurance coverage threshold, the Government is seriously considering an increase and this is welcome news for all depositors in the country. It should once again be reiterated that the Indian Government and RBI have historically held the fort and nursed troubled banks into recoveries or mergers in order to protect customer interests.


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