The evolution of the deposit insurance is likely to confront more complex challenges amid heightened uncertainty, Patra said, adding, “For instance, climate change is emerging as an overarching risk to the global economy and financial systems.”
Citing an IADI survey, Patra said as much as 60 percent of deposit insurers have formalised environmental, social and governance (ESG) policies and some of them are members of the Network for Greening the Financial System (NGFS).
“Back home we are framing a comprehensive ESG policy, incorporating elements of climate sustainability, investment in sovereign green bonds, measuring the impact of climate change on default risk and contingency planning for climate related extreme events via actuarial analysis,” the senior most deputy governor, who is in charge of the all important monetary policy department, said.
Some banks like SBI, which launched the first green deposits drive, are already taking a closer look at green financing after being nudged by the RBI. Also, Canara Bank, Bank of Maharashtra, IDFC First Bank, Federal Bank and HSBC India have partnered with different companies and service providers or built specific individual products.
The idea of deposit insurance was shaped by intermittent bank failures between 1948 and 1960 following which the government enacted the Deposit Insurance Act in 1961 to set up the Deposit Insurance Corporation, as a wholly owned subsidiary of the RBI. Later it was merged with the Credit Guarantee Corporation of India and renamed as the Deposit Insurance and Credit Guarantee Corporation in July 1978 with the mandate of “insurance of deposits and guaranteeing of credit facilities and for other matters connected therewith or incidental thereto.” But from April 2003, the credit guarantee function was discontinued and deposit insurance became and remains the principal function of the corporation now.
Today deposit insurance is mandatory for all banks in the country, including foreign banks. Currently, 1,997 banks are covered, comprising 140 commercial banks and 1,857 cooperative banks, making it the second largest in the world, after the US. On a by-account basis, the coverage ratio is 97.9.