Deposit Insurance

Abstract

Deposit insurance is intended for providing security to depositors from the standpoint of averting bank runs. It is crucial for nations to examine their institutional environment, banking structure, and regulatory framework before insuring deposits in the interest of maintaining market discipline. In the case of India, while Deposit Insurance and Credit Guarantee Corporation (DICGC) has been contributing appreciably to the stability of Indian banking system by safeguarding depositors against possible loss of their entitled deposits with insured banks, the system is based on “paybox” mandate and affords limited conditional protection to depositors. Guided by the need for a stronger resolution mechanism, the Indian government introduced the Financial Resolution and Deposit Insurance (FRDI) Bill in August 2017, which had its own share of controversies, conceivably the most confounded provisions being the bail-in clause and omission of explicit declaration of maximum coverage. The economic and political pressures, however, led to the dropping of the Bill in July 2018, thus creating further vacuum in an already underprovided deposit protection.