Request to Home Minister to help in raising the Deposit Insurance Cover for depositors in Banks and give relief to lakhs of people

ALERT CITIZENS FORUM OF INDIA

A7/303, Saket CHS LTD., Thane (W) 400601

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November 6, 2019

Shri Amitbhai Shah ji,

National President,

Bharatiya Janata Party.

Respected Sir,

We know that this is not your subject as Home Minister. However, this letter is addressed to you as the National President of the party with the confidence that you will pursue this matter with the concerned and help provide relief to lakhs of people in the country.

Sir, the last big change in the maximum limit of deposit insurance cover for depositors in Banks was made in the early years of liberalisation in 1993 when the insurance cover of all deposits from savings to term deposits was increased from Rs 30,000 to Rs 1 lakh.

The objective was to provide comfort to depositors that their deposits up to Rs 1 lakh are safe in case the bank goes bust. However, 26 years on, the limit has not been revised again despite the law having provision for a higher insurance cover. 

It is high time for the government to fix a higher limit (at least Rs 5 lakh) to protect the interest of depositors. Here's why:

Revision is long overdue

Today, it's common for most account holders to have a deposit more than Rs 1 lakh. The very fact that the last hike took place 26 years ago makes a strong case for a revision now. 

In fact, the last four changes until 1993 happened in quick succession reflecting the depreciating value of money in an economy because of inflationary impact.

The deposit insurance cover started with a limit of Rs 5,000 in 1968. This was revised to Rs 10,000 after two years in 1970. The next revision happened in 1976 to Rs 20,000 after six years, and the fourth revision took place in 1980 to Rs 30,000.

India’s deposit guarantee rule of Rs 1 lakh per depositor was decreed in 1993, over a quarter of a century ago. It’s remained unchanged since then, even as the economy has grown in decadal multiples and inflation has denuded the real value of cash.

Just inflation indexing this Rs 1 lakh deposit insurance would have made it Rs 15 lakh-plus today; and further indexing it to GDP multiples would have brought the figure close to Rs 1 crore.  

But a $5-trillion-in-the-making India still does a measly Rs 1 lakh per depositor. It’s shameful.

The Damodaran Committee on Customer Services in Banks, which was set up by the Reserve Bank of India, in its report in 2011 had recommended a five-time increase in the cap to ₹5 lakh due to rising income levels and increasing size of individual bank deposits.

The collapse of many cooperative banks, notably the Punjab and Maharashtra Co-op Bank have shown how much gullible are unsuspecting depositors.

To protect their interests, it is imperative that the Government changes the Deposit Insurance Cover for depositors in Banks.

Alert Citizens Forum of India requests you to raise the same atleast to Rs. 5 lakhs as suggested by the Damodaran Committee.

Regards,

For Alert Citizens Forum of India,

Dayanand Nene  (8879528575)           

President