RBI Deputy Governor Swaminathan J Discusses Insurance for Small Depositors and Senior Citizens
New Delhi [India], August 19: RBI Deputy Governor Swaminathan J suggested that full insurance coverage for all depositors is financially non-viable. Instead, he proposed targeted insurance for small depositors and senior citizens to protect them from losses in case of a bank failure.
Speaking at the International Association of Deposit Insurers (IADI) Asia-Pacific Regional Committee International Conference in Jaipur, he explained that while full insurance coverage is ideal for depositors and helps avoid bank runs, it also comes with moral hazards and financial challenges.
He proposed examining the economic viability of an alternate targeted insurance approach, which would provide full coverage for certain customer sections, like small depositors and senior citizens, based on a careful evaluation of the costs and benefits.
Swaminathan J highlighted the importance of public awareness about deposit insurance, noting that increased awareness can significantly reduce the likelihood of bank runs. He cited a study showing that public awareness of deposit insurance can decrease the propensity of depositors to withdraw their funds by 67%.
He emphasized the need for regulators and deposit insurers to realign their policies to enhance banks’ risk management capabilities, especially in managing liquidity risks. The Deposit Insurance and Credit Guarantee Corporation (DICGC) currently insures principal and interest up to a maximum amount of Rs five lakhs.
Since the introduction of the deposit insurance scheme in 1962, the number of insured banks has increased from 287 to 1,997 as of March 31, 2024. The primary goal of deposit insurance is to protect small depositors and maintain confidence in the banking system.
Doubts Revealed
RBI -: RBI stands for Reserve Bank of India. It is the central bank of India, which means it controls the money supply and interest rates in the country.
Deputy Governor -: A Deputy Governor is a high-ranking official in the RBI who helps in making important decisions about the country’s money and banking system.
Swaminathan J -: Swaminathan J is a person who works as a Deputy Governor at the RBI. He helps in managing the country’s banking and financial policies.
Small depositors -: Small depositors are people who have a small amount of money saved in a bank. They are usually regular people who save their money for future needs.
Senior citizens -: Senior citizens are older people, usually above the age of 60, who are often retired and rely on their savings for their daily expenses.
Bank failures -: Bank failures happen when a bank runs out of money and cannot give back the money people have saved in it. This can cause people to lose their savings.
International conference -: An international conference is a big meeting where people from different countries come together to discuss important topics and share ideas.
Financial non-viability -: Financial non-viability means that something is not practical or possible because it costs too much money.
Deposit insurance -: Deposit insurance is a protection scheme that ensures people get their money back if a bank fails. It helps people feel safe about keeping their money in banks.
Risk management -: Risk management is the process of identifying and handling potential problems that could cause harm, like losing money. Banks use risk management to make sure they don’t lose too much money.