Why India’s deposit insurance should increase

Currently, premiums are charged at a flat rate.

CredtSights suggests alternative approaches to the quantum of deposit insurance in India, proposing a range between ₹520,000 and ₹2,100,000. 

Whilst commercial banks contribute the majority of insurance premiums—94.4% in FY24—cooperative banks have accounted for a larger share of payouts. 

Currently, premiums are charged at a flat rate, but CredtSights suggests considering risk-based pricing to align costs with risk exposure.  

Recent restrictions on New India Cooperative Bank Ltd. and the DICGC’s announcement to settle eligible depositors’ dues have renewed discussions on increasing the deposit insurance limit. 

Calls for an increase come amidst historical shifts in coverage. After the limit was raised in FY20, the share of insured deposits briefly spiked to 49% before declining. 

The share of protected accounts also rose to 97.8% but remains below the 99.4% coverage seen in FY95.  

Whilst the deposit insurance framework has evolved since its introduction in 1962, future considerations include the extent of coverage required, risk ratings of insured banks, and potential adjustments to premium structures to ensure adequate protection whilst maintaining financial stability.

Deposit insurance in India covers all commercial and cooperative banks but does not extend to non-banking financial companies (NBFCs) that accept public deposits.

As of 31 March 2024, there were 1,997 registered insured banks, including 95 commercial banks, 43 regional rural banks (RRBs), two local area banks (LABs), and 1,857 cooperative banks.  

In FY24, insured deposits stood at ₹94.1 lakh crore, representing 43.1% of total assessable deposits. 

Whilst this is a decline from the peak of 75.3% in FY97, the proportion of protected accounts remained high at 97.8%. 

The decrease in the share of insured deposits is attributed to the growth of the financial sector.  

The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures all bank deposits except those belonging to foreign governments, central and state governments, state land development banks, inter-bank deposits, offshore deposits, and other exempted categories approved by the Reserve Bank of India (RBI).