A recent report from the press says that the Indian banks have rarely seen failures unlike the US, in which has seen a swelling of around 4000 banks during the Great Depression in 1933 and around 398 banks during the Great Recession of 2008. But this should not hide the fact that nearly Rs.32 lakh crore i.e. two-third of the Indian deposits have not been insured and this was double the time for the past decade.
Deposit insurance would be a safety cover that would guarantee the bank depositors that they are protected in hard times. Indian banks were the second to adopt deposit insurance in 1962 after the consequences of recession the US met. However, it has been limited to retail depositors up to Rs.1 lakh per account. This in turn has left a large quantum of money unguarded.
Besides, the banks can secure the deposits by investing major part of their deposits say 30 per cent in Government securities or held as liquid cash. Only the retail depositors are covered under the deposit insurance and not the larger institutions.
The Damodaran Committee on Customer Service in Banks had recommended that this amount of Rs.1 lakh should be raised to Rs. 5 lakh.