Topic: Government policies and interventions for development in various sectors and issues arising out of their design and implementation. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
5) Compared to other BRICS nations, India today has the lowest deposit insurance cover to per capita income ratio, at 0.9 times.Discuss the significance of deposit insurance coverage of bank accounts and also, comment on the lacunae in the current deposit insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) and suggest suitable cure. (250 words)
Why this question:
With the Non-Performing Assets (NPA) situation not improving in most banks, the advent of another major crisis brought into focus, once again, the deposit insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI.
Key demand of the question:
One has to bring in a detailed analysis of how the Punjab and Maharashtra Co-operative (PMC) Bank crisis and subsequent RBI restrictions on withdrawal have brought the focus on the need for deposit insurance coverage.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
In brief discuss that compared to other BRICS nations, India today has the lowest deposit insurance cover to per capita income ratio, at 0.9 times.
Explain first what the issue is.
Discuss the concerns associated; An SBI report states that 93% of the premium collected by the DICGC in 2018-19 came from commercial banks (public sector: 75%, private sector: 18%), but over 94% of the claims settled (ever since the inception of the DICGC) have been those of cooperative banks. Clearly, poor governance in cooperative banks has been cross-subsidized by the better-performing commercial banks.
Suggest what needs to be done.
Conclude that necessary steps in expanding and rectifying the deposit insurance scheme as a safety net of the financial system is the need of the hour.