Radhika Merwin-Hindu Business Line
Date: 15.03.2015 Do bank deposits come with adequate cover? Perhaps not, as less than a third of bank deposits in value terms is currently covered by insurance.
Deposit Insurance and Credit Guarantee Corporation of India (DICGC), a wholly-owned subsidiary of the Reserve Bank of India, provides cover to deposits of all commercial banks, local area banks, regional rural banks and co-operative banks. Each deposit account is insured up to ₹1 lakh, including principal and interest. This limit applies separately to deposits in each bank. If a bank goes belly up, the DICGC pays the customer the deposit amount up to a maximum of ₹1 lakh.
About a decade back, 95 per cent of the accounts and 66 per cent of the value of deposits had the DICGC cover. But this had dropped to 92 per cent of the accounts by 2013-14, and only 31 per cent of value of deposits.
This could be due to a sharp jump in the amount held in each deposit account. In 2004-05, the average amount in each account was ₹37,000. Over the last decade this has almost doubled to ₹67,000.
Deposit insurance cover has clearly failed to keep up with increasing sums in bank accounts. The DICGC cover was last raised in 1993 from ₹30,000 to ₹1 lakh. This was done after a long gap of 13 years.
For over two decades the cover has remained at ₹1 lakh. Experts feel that a revision is long overdue. Even assuming an inflation of 6.5-7 over the past two decades, the insurance cover should go up to ₹5 lakh. “The purpose of the deposit insurance was to give an additional cover to small deposit holders and provide them a safety net and confidence in the banking system. Given India’s growth in the last two decades as well as inflation, an increased cover may be considered,” says Monish Shah, Senior Director, Deloitte India.
Is the situation the same across the banking industry? No. Deposits with public sector banks are better covered than those of private or foreign banks. While public sector banks have about a third of their deposit value under the DICGC cover, it is 23 per cent in private banks and just 6 per cent in foreign banks.
But this is only because a larger portion of deposits of both private and foreign banks exceed ₹1 lakh. For instance, while state-owned banks, including the State Bank of India, hold an average of ₹66,000 in each deposit account, private banks have over ₹1 lakh. Foreign banks, on the other hand, average ₹7 lakh in each deposit account.
The total deposits held by private sector banks rose from ₹1.17 lakh crore in 2000-01 to ₹15.9 lakh crore in 2013-14, implying almost a 14-fold rise. Their public sector counterparts saw a nine-fold rise in deposits from ₹7.4 lakh crore to ₹65.9 lakh crore over the same period. Foreign banks held fixed deposits worth ₹3.5 lakh crore in 2013-14, seven times more than in 2000-01.
An increase in insurance cover means an additional outflow for banks. Currently, the premium is paid by banks and not passed on to the customer. The DICGC charges a maximum premium of 15 paise per ₹100 per annum.
So far in India, this cover has come in handy to protect only the customers of urban co-operative banks, many of which fail every year. During 2013-14, DICGC settled claims for ₹103 crore to depositors of 51 co-operative banks
Fixed deposits still rule investor’s mind- By Adhil Shetty-Asian Age 15.03.2015
Its risk free and hassle free nature and flexibility of tenure make the fixed deposit the best bet among the variety of investment options.
India is a land of diverse cultures, religions and languages. In a country where language, dialect and food habits change every hundred kilometres, some things rem-ain constant. No, we are not talking about Indians crying war when it comes to an India-Pakistan cricket match, or our blind faith in Aamir Khan’s histrionic abilities, but about our ingrained financial habits.
Despite the deluge of many attractive and high yielding investment plans, the common man across India still prefers bank fixed deposit as a preferred investment vehicle. Despite the economy rising exponentially in the last decade and investors from all over the globe showing interest in the Indian equity market, traditional fixed deposits ha-ve managed to maintain their allure.
Different surveys conducted by many investment companies have revealed that while interest in equity market is high, bank fixed deposits continue to rule the hearts of the Indian investor. Let’s see why.
Low investment limit
Fixed deposits do not require any high minimum amount to start investing. Some public sector banks allow people to start a fixed deposit account from as low as `1,000. This ease of investing with a low minimum amount accompanied by very less paperwork has been one of the reasons why FDs have been the preferred investment by majority of Indians. Even the most well informed investor would have some funds parked in a bank fixed deposit.
Assured returns
Indian investors are traditionally low-risk takers and tend to invest in instruments offering secured returns than in high-risk-high-reward investments.
Since bank fixed deposits are assured-return products, investors are more at ease investing in them as compared to a mutual fund or equity investment. A little information is a dangerous thing and most people presume that all their FDs are guaranteed by the Reserve Bank of India; while the fact is that bank fixed deposits up to a value of `1 lakh are insured by the government through Deposit Insurance and Credit Guarantee Corporation.
Better returns
Since bank fixed deposits offer higher interest rates than saving bank account, people are tempted to switch their extra funds conveniently in a fixed deposit scheme. This means that people who are not essentially investors are also parking their money in bank fixed deposits. Just like how interest earned on savings bank account is taxable, people do not mind paying tax on interest earned on a bank fixed deposit as it offers decent, and more importantly, safe returns.
Loan facility option
The facility to avail loans against FDs with ease is another reason why FDs rank high in many investors’ list of preferred investment channels. Seeking a loan in case of a financial emergency can be a tough proposition especially if you have a low credit rating. If you have a fixed deposit, banks are happy to lend money to you against that and that too at a far lower interest rate as compared to a personal loan.
Flexible tenure
Bank FDs have flexible tenure options catering to the need of investors with different investment horizons. People can choose to invest from as low as a seven-day period to a five-year period depending on their preference. What’s more, banks these days have the facility of auto-renewal, which means the fixed deposit is renewed after its tenure ends even if the investor fails to visit the bank.
http://www.asianage.com/category/author/adhil-shetty-0
Fixed deposits still rule investor’s mind- By Adhil Shetty-Asian Age 15.03.2015
Its risk free and hassle free nature and flexibility of tenure make the fixed deposit the best bet among the variety of investment options.
India is a land of diverse cultures, religions and languages. In a country where language, dialect and food habits change every hundred kilometres, some things rem-ain constant. No, we are not talking about Indians crying war when it comes to an India-Pakistan cricket match, or our blind faith in Aamir Khan’s histrionic abilities, but about our ingrained financial habits.
Despite the deluge of many attractive and high yielding investment plans, the common man across India still prefers bank fixed deposit as a preferred investment vehicle. Despite the economy rising exponentially in the last decade and investors from all over the globe showing interest in the Indian equity market, traditional fixed deposits ha-ve managed to maintain their allure.
Different surveys conducted by many investment companies have revealed that while interest in equity market is high, bank fixed deposits continue to rule the hearts of the Indian investor. Let’s see why.
Low investment limit
Fixed deposits do not require any high minimum amount to start investing. Some public sector banks allow people to start a fixed deposit account from as low as `1,000. This ease of investing with a low minimum amount accompanied by very less paperwork has been one of the reasons why FDs have been the preferred investment by majority of Indians. Even the most well informed investor would have some funds parked in a bank fixed deposit.
Assured returns
Indian investors are traditionally low-risk takers and tend to invest in instruments offering secured returns than in high-risk-high-reward investments.
Since bank fixed deposits are assured-return products, investors are more at ease investing in them as compared to a mutual fund or equity investment. A little information is a dangerous thing and most people presume that all their FDs are guaranteed by the Reserve Bank of India; while the fact is that bank fixed deposits up to a value of `1 lakh are insured by the government through Deposit Insurance and Credit Guarantee Corporation.
Better returns
Since bank fixed deposits offer higher interest rates than saving bank account, people are tempted to switch their extra funds conveniently in a fixed deposit scheme. This means that people who are not essentially investors are also parking their money in bank fixed deposits. Just like how interest earned on savings bank account is taxable, people do not mind paying tax on interest earned on a bank fixed deposit as it offers decent, and more importantly, safe returns.
Loan facility option
The facility to avail loans against FDs with ease is another reason why FDs rank high in many investors’ list of preferred investment channels. Seeking a loan in case of a financial emergency can be a tough proposition especially if you have a low credit rating. If you have a fixed deposit, banks are happy to lend money to you against that and that too at a far lower interest rate as compared to a personal loan.
Flexible tenure
Bank FDs have flexible tenure options catering to the need of investors with different investment horizons. People can choose to invest from as low as a seven-day period to a five-year period depending on their preference. What’s more, banks these days have the facility of auto-renewal, which means the fixed deposit is renewed after its tenure ends even if the investor fails to visit the bank.
http://www.asianage.com/category/author/adhil-shetty-0
No comments:
Post a Comment