India ranks 2nd globally in deposit insurance cover
Deposit insurers are having to re-evaluate operational risks posed to depositors and member banks from the emergence of these 24/7 payment systems
Mumbai: The Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra on Tuesday said that the digital payments space is undergoing a silent revolution.
Speaking at the International Association of Deposit Insurers (IADI) Asia Pacific Regional Committee (APRC) International Conference hosted by Deposit Insurance and Credit Guarantee Corporation (DICGC) on the topic 'Navigating Emerging Challenges for Deposit Insurers and Fortifying Crisis Preparedness, Patra said that in over 70 countries today, domestic payments reach their destination in seconds at near-zero cost to the sender or the recipient with the growing availability of instant payment systems (IPS).
Deposit insurers are having to re-evaluate operational risks posed to depositors and member banks from the emergence of these 24/7 payment systems.
Patra said that while digital innovations can ease cross-border supply of financial services, they can also increase the likelihood of deposit insurers exposed to member banks with a significant share of non-domestic depositors and additional challenges in the case of a payout following bank default.
“In fact, the increasing ambit of cross-border banking activities makes cross-jurisdiction cooperation between deposit insurers and other financial safety net participants all the more relevant. The global financial landscape is changing rapidly. For deposit insurers and other financial safety net participants, it is a race to stay ahead of the curve amidst these tectonic shifts,” he said.
DICGC has extended coverage to 1,997 banks. This includes 140 commercial banks and 1,857 cooperative banks, making India the country with the second-largest number of deposit-taking institutions covered by deposit insurance in the world, following only the United States, said Patra. As on March 31, 2024 interim payments were made to 3.76 lakh depositors amounting to ₹5359 crores (approximately USD 640 Million). The current deposit insurance coverage limit in India is Rs 5 lakh (approximately USD 6,000), which fully protects 97.8 per cent of deposit accounts and 43.1 per cent of deposit value.
Patra cited the example of Central bank digital currencies (CBDCs) which could become a safe haven in times of crisis leaving bank deposits – particularly uninsured deposits – more prone to sudden withdrawal and could even cause bank runs. “For deposit insurers, factors of key interest would be the degree of replacement of bank deposits by CBDC, the division of labour between central and commercial banks and the degree of privacy attached to CBDC usage.”
CBDC is a legal tender or fiat currency issued by a central bank in a digital form. RBI started a pilot for wholesale CBDC in November 2022 and retail CBDC in December 2022.