RBI Annual Report 2022-23: Less than 50% of deposits with banks are insured; here's what it means

With interest rates as high as 7 per cent, small investors tend to invest their money in fixed deposits, especially when small banks are offering interest rates upto 9 per cent. To protect these small investors The Deposit Insurance and Credit Guarantee Corporation (DICGC), which is fully owned by the Reserve Bank of India (RBI), offers deposit insurance of Rs 5 lakh per depositor for each bank.

Under the scheme, a sum of upto Rs 5 lakh, including the principal and interest amount, is paid to the depositor in the event of the bank being unable to fulfil its commitment due to liquidation or cancellation of the banking licence.

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However, the question arises if it is sufficient to cover total deposits held by banks. According to the latest RBI annual report 2022-23, as of March 31, 2023, the number of fully protected accounts amounted to 294.5 crore, which accounted for 98.1 per cent of the total number of accounts (300.1 crore). However, in terms of the insured deposit amount, it totalled Rs 83,89,470 crore, representing 46.3 per cent of the assessable deposits amounting to Rs 1,81,14,550 crore.

The size of the Deposit Insurance Fund (DIF) stood at Rs1,69,263 crore (Provisional) as on March 31, 2023, yielding a reserve ratio (DIF/insured deposit) of 2.02 per cent.

"With the current limit of deposit insurance in India at Rs 5 lakh per depositor of a bank 'in the same capacity and in the same right’, the number of fully protected accounts (294.5 crore) as on March 31, 2023 constituted 98.1 per cent of the total number of accounts (300.1 crore). In terms of amount, the total insured deposits of Rs 83,89,470 crore as on March 31, 2023, constituted 46.3 per cent of assessable deposits of Rs1,81,14,550 crore. At the current level, insurance cover would be 2.91 times of per capita income in 2022-23," RBI's annual report stated.

On the number of claims settled, the report states, “During 2022-23, the Corporation has sanctioned supplementary claims of 11 liquidated banks aggregating Rs 105.8 crore under Section 16 (1) of the DICGC Act, 1961. Besides, during 2022-23, the Corporation has also settled claims in respect of 28 banks under ‘All Inclusive Directions (AIDs)’ of the Reserve Bank aggregating Rs 646.8 crore."

Who is covered?

DICGC extends deposit insurance coverage to all licensed commercial banks, including local area banks (LABs), payments banks (PBs), small finance banks (SFBs), regional rural banks (RRBs), and co-operative banks regulated by the Reserve Bank. As of March 31, 2023, there were a total of 2,027 registered insured banks. This includes 140 commercial banks (including 43 RRBs, two LABs, six PBs, and 12 SFBs) and 1,887 co-operative banks.

Timelines for insured bank claims and payouts by DICGC

As per the requirements, an insured bank must submit its claim within 45 days of the imposition of AID (All Inclusive Directions). Following this, the DICGC is responsible for verifying the claims within 30 days and making payments to the depositors within the subsequent 15 days. The DICGC Act does not provide any provision for extending these fixed timelines for either the insured bank or the DICGC.

However, according to the RBI’s annual report, there have been instances where certain Urban Cooperative Banks (UCBs) have failed to submit the list of depositors' claims within the statutory timeline of 45 days. This situation poses a constraint for the DICGC as it cannot make payouts to eligible depositors of those banks until the claim list is submitted.

What to do?

DICGC combines the funds held in various branches to determine deposit insurance coverage. In situations where there are different types of ownership, the corporation provides separate insurance coverage for each type. Furthermore, if a depositor possesses two separate accounts in two different banks, and both banks face closure, the DICGC ensures that the depositor is covered individually for each account. Hence, it is always good to diversify among various banks to get the maximum insurance coverage on your deposits.