The Reserve Bank of India (RBI) committee’s recommendations of raising bank deposit insurance cover five times from Rs 1 lakh to Rs 5 lakh will give a big push to private sector and small banks as they will be able to attract more customers, especially in semi-urban and rural areas, as they can assure customers of no loss of money up to Rs 5 lakh.
“Because of the government backing, people in semi-urban and rural areas have more trust in public sector banks,” said M Palanianppan, chief financial officer of private sector bank Lakshmi Vilas Bank that is based in Tamil Nadu. “The increase in deposit insurance will help private sector banks to connect people better as they (banks) can tell the customers that their money up to R5 lakh is safe, if anything happens to the bank,” said Palanianppan.
The committee recommendations which were made public on Thursday, has proposed several measures to improve customer services in banks including raising deposit insurance cover five times. RBI had constituted the committee last year under the chairmanship of M Damodaran, former chairman, Securities and Exchange Board of India.
In the last one year, midsize and small private sector banks such as Yes Bank, IndusInd Bank, Dhanalakshmi Bank and Lakshmi Vilas Bank Bank announced plans to increase their presence in newer areas through branch and ATM expansion.
“Small banks in rural and semi-urban areas will be benefited most by increase in deposit insurance cover,” said VR Iyer, executive director, Central Bank of India.
Due to the current limit of Rs 1 lakh, customers deposit surplus money with two or three banks in order to get increased insurance cover.
“Once the limit is raised depositors will not have to go to other banks,” said Palanianppan.