RBI Deputy Governor Calls for Review of Deposit Insurance Coverage Amidst Growing Deposits

M. Rajeshwar Rao, Deputy Governor of the Reserve Bank of India (RBI), has advocated for a periodic upward revision of the uniform deposit insurance coverage of ₹5 lakh per depositor. Speaking at the IADI Asia-Pacific Regional Committee International Conference, Rao emphasized that India’s economic growth and increasing formalisation of the financial sector could soon widen the gap between the ideal insurance reserve requirements and the current reserves. He highlighted the need for a reassessment to address the anticipated rise in both primary and secondary deposits.

Rao also discussed the challenges and potential solutions related to deposit insurance, suggesting that while full coverage is ideal for depositors and helps prevent bank runs, it may not be financially viable. He proposed exploring alternative insurance approaches, such as targeted coverage for small depositors and senior citizens, which could be more feasible. Furthermore, Rao raised the possibility of extending insurance to digital deposit-like products, reflecting on recent recommendations to include money in prepaid card issuers’ wallets.

Additionally, Rao recommended adopting a risk-based premium system to better manage the deposit insurance fund, ensuring its robustness and adaptability to evolving financial conditions. He stressed the importance of the Deposit Insurance and Credit Guarantee Corporation (DICGC) in supporting the consolidation of urban cooperative banks and enhancing financial inclusion, suggesting that innovative products and new risks require careful consideration in the insurance framework.

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