‘Time to have separate deposit insurance for SB, FD accounts’

Current upper limit has outlived its utility, says SBI report

Amid the crisis in Punjab & Maharashtra Co-operative Bank that had created panic among a section of depositors, a report by the State Bank of India (SBI) has called for a re-look at the deposit insurance scheme.

“The current upper limit of Rs. 1 lakh per depositor, we believe, has outlived its shelf life and there is a need to revisit it,” SBI said in a report.

The report suggested a two-tier system of deposit insurance — one for savings account deposit and the other for fixed deposits.

At present, deposits of up to Rs. 1 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation.

“The DICGC coverage should be revised and bi-furcated into two categories: 1) desirable coverage of at least Rs. 1 lakh for SB deposits (around 90% of the total SB accounts) and 2) desirable coverage of at least Rs. 2 lakh for term deposits (around 70% of the total TD accounts),” the report said.

Senior citizens

The report also suggested a separate provision for senior citizens. “This revision in DICGC coverage becomes all the more desirable in the Indian context, where senior citizens/retired people have no social security in place and mostly keep fixed deposits for earning interest income,” it said.

The report suggested depositors get an incentive to spare a part of their total deposits to buy bank bonds that provide guaranteed coupon rates on a half-yearly basis and are tax-free.

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