




































Indian Journal of Finance and Banking 

 Vol. 4, No. 4; 2020 

                                       ISSN 2574-6081   E-ISSN 2574-609X 

Published by CRIBFB, USA 

 

66 

DEPOSIT INSURANCE COVERAGE LIMIT: HOW MUCH IS 

ENOUGH? EVIDENCE FROM INDIA 

 
 

Ms. Varda Sardana 

Assistant Professor 

Department of Commerce, Shri Ram College of Commerce 

University of Delhi, India 

E-mail: varda.sardana@gmail.com 

 

Dr. Abha Shukla 

Assistant Professor 

Department of Commerce, Faculty of Commerce and Business 

University of Delhi, India 

E-mail: abhajshukla@yahoo.co.in 

 

 

ABSTRACT 

Deposit insurance is one of the safety nets employed by nations to ensure banking stability and 

depositor protection. Determining the appropriate coverage limit for depositors under a system 

of explicit deposit insurance is one of the most important policy decisions. This study examines 

the adequacy of deposit insurance coverage limit, through a case of India, to determine the 

appropriate level of coverage. The study also investigates the suitability of the recent five-fold 

increase in the coverage limit of India. Time series data from 1993-94 to 2017-18 has been 

employed for the regression analysis. India’s data has been compared with several countries 

with similar deposit insurance characteristics, using a t-test of sample means, over the period 

2003 to 2017. The results show that the real coverage limit as well as the coverage ratio in India 

has been declining over the sample period. Moreover, India’s position has tumbled vis-à-vis its 

peers in terms of coverage ratio. The findings suggest that the increase in India’s coverage limit, 

after almost 27 years, is a much-needed move. The increase is enough to bring back India’s 

coverage limit to comparable levels; however, this one-time increase is not sufficient in isolation 

of other policy variables.  

 

Keywords: Coverage Limit, Deposit Insurance, Indian Banking. 

 

JEL Classification Codes: C12, C22, G21, G22. 

 

INTRODUCTION 

During the Budget Speech 2020, Ms. Nirmala Sitharaman, the Finance Minister of India 

announced an increase in the deposit insurance coverage from Rs. 0.1 million to Rs. 0.5 million 

per depositor (Sitharaman, 2020). This five-fold increase in deposit insurance coverage has 

brought cheer amongst the depositors. The increase comes almost 27 years after the coverage 

limit was last revised to Rs. 0.1 million, from Rs. 30,000, in the year 1993 (Deposit Insurance 

and Credit Guarantee [DICGC] Act 1961, 2006). The Punjab and Maharashtra Co-operative 

mailto:varda.sardana@gmail.com


https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

67 

(PMC) bank crisis of September 2019, followed by the deposit withdrawal restrictions on Sri 

Guru Raghavendra Sahakara Bank in January 2020, has led to anguish among several depositors. 

These crises have not only thrown light on the regulatory deficiencies among co-operative banks 

but also brought forward concerns regarding the sufficiency of deposit safeguards. 

The 59-year old deposit insurance system (DIS) of India, therefore, had to be re-

examined for the extent of coverage provided to the depositors. But on what grounds is this 

increase justified? Is a one-time increase in coverage limit enough to solve the depositors’ woes? 

This study seeks to provide answers to these questions. 

 

Understanding Deposit Insurance  

The banking system in a country is of prime importance for the development of the nation. By 

mobilizing funds from the surplus to deficit units, and allocating them among productive 

investments, banks play an active role in the development of businesses, financial intermediation 

and, the economy (Akani & Oparaordu, 2018; Gololo, 2017). This sector has been rightly called 

the ‘lifeblood’ of an economy; hence, any country must ensure that the banking system is well 

protected through the adoption of certain safeguards. Deposit insurance is one such safeguard. 

Deposit insurance is a system under which bank depositors are offered full or partial 

protection of the deposits held by them in their accounts (Garcia, 1996). This system aims to 

ensure banking stability by assuring the depositors about the safety of their deposits. Banks, 

across the globe, face various kinds of issues such as loan defaults, misgovernance, etc. and all of 

these tend to jeopardize banks’ performance and output (Rezina, Chowdhury & Jahan, 2020). In 

such scenarios, deposit insurance reduces the incentive of depositors to run on banks witnessing 

distress, and hence, helps to contain the contagion effect of a bank failure (Cecchetti, 2008). 

Apart from banking stability, a system of deposit insurance helps to achieve many other 

objectives. Firstly, a DIS enhances public confidence in the banking system, thereby reducing the 

incentives to participate in bank runs based on rumors (Cecchetti, 2008). Second, and a major 

aim that deposit insurance seeks to serve, is the protection of small depositors (Demirgüç-Kunt 

& Kane, 2002). Third, deposit insurance serves the objective of financial inclusion. Small 

depositors or depositors in rural areas may be wary of keeping their hard-earned money in bank 

accounts. Deposit insurance assures such depositors of the safety of deposits and also facilitates 

banking activities. This ease of banking promotes financial inclusion among such small 

depositors, including self-help groups (Singh, Roy & Pandiya, 2020). Such a system, however, 

carries with it certain concerns that any general contract of insurance entails. The introduction of 

an explicit scheme of deposit insurance in a country may lead to a problem of moral hazard, with 

banks taking excessive risk in the hope of shifting this risk to the deposit insurer (Hooks & 

Robinson, 2002; Wagster, 2007; Ioanniduo & Penas, 2010; DeLong & Saunders, 2011). 

Moreover, it may also make the depositors more casual and complacent towards their banks, 

leading to a decline in bank monitoring (Demirgüç-Kunt & Huizinga, 1999; Iaonnidou & Penas, 

2010). These two major concerns can push the banks towards highly risky behavior and 

ultimately result in bank failure and instability- something which the deposit insurance system 

aims to avoid. Despite these issues, over 110 jurisdictions in the world have established an 

explicit system of deposit insurance with varying design features (World Bank, 2019). These 

features are substantially influenced by the regulatory and supervisory environment of a country 

(Demirgüç-Kunt & Kane, 2002). Germany, for example, has a privately funded and managed 

DIS, wherein member banks monitor each other’s activities (Beck, 2002). Countries like Japan, 

Canada, Italy, the United States, etc. have more than one deposit insurer operating within the 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

68 

jurisdiction, to provide coverage to different classes of banks. While the majority of the countries 

restrict the authority of their deposit insurer to reimbursing the depositors in case of a bank 

failure, Korea, the United States, Norway, Germany, etc. have provided extensive powers to the 

insurer to act as an administrator and liquidator to the failing banks (International Association of 

Deposit Insurers [IADI], 2018). 

The deposit insurance system of India is the second oldest in the world, with the United 

States having the oldest and largest deposit insurance (IADI, 2018) (Note 1). The insurance 

facility of Deposit Insurance and Credit Guarantee Corporation (DICGC), the deposit insurer of 

India, extends to all commercial banks, as well as all eligible co-operative banks (Note 2) in 

India. As per the DICGC Act 1961, all types of deposits are covered except certain types of 

deposits specifically excluded from the scheme by Act. The insurance coverage was limited to a 

maximum of Rs. 0.1 million per depositor (now Rs. 0.5 million from February 2020), for 

principal and interest amount together, held at all branches of a bank in the same right and same 

capacity. Membership to the scheme of deposit insurance is compulsory, and no bank can 

withdraw from the scheme voluntarily. The deposit insurance fund in India is an ex-ante fund, 

with premium income and investment income comprising the major sources of revenue for the 

fund. All insured banks are required to pay a premium of 0.1% p.a. of their total assessable 

deposits to DICGC. The system follows a pay-box mandate, which means that the insurer’s 

powers are limited to paying the depositors to the extent of coverage limit as per the provisions 

of the DICGC Act, 1961. 

 

The Decision of Coverage Limit  

The limit of the insurance coverage is probably one of the most challenging decisions for a 

country establishing an explicit system of deposit insurance. As per Lee and Kwok (2000), full 

coverage or a blanket guarantee promotes banking stability and allows some extra time for the 

banks to revive themselves in the absence of constant pressure from depositors. This may be true 

to some extent, but one can always argue that full coverage can only reduce but not eliminate the 

incentives for a run on banks, as the depositors may still be wary of the temporary inability to 

withdraw their deposits from the ailing banks. A cross-country study by Demirgüç-Kunt and 

Detragiache (2002) suggests that an explicit system of deposit insurance jeopardizes banking 

stability, and this negative impact is intensified with the increase in levels of coverage. This is 

supported by the study undertaken by Kim, Kim and Han (2015) in ASEAN countries, which 

suggests that higher levels of coverage invite more moral hazard on part of banks, with banks 

engaging in riskier activities. The more generous the deposit insurance scheme is, the greater is 

the moral hazard (Ngalawa, Tchana & Veigi, 2016). Additionally, Demirgüç-Kunt and Huizinga 

(2004), through their cross-country study, provide evidence that higher levels of deposit 

insurance coverage lower market discipline in banks, thereby making them more vulnerable to 

failures.  

Comparing three different types of deposit insurance regimes- no insurance, limited 

insurance coverage, and full insurance, Shy, Stenbacka and Yankov (2016) found that limited 

insurance coverage weakens the competition between banks for the deposit market by allowing 

large depositors to transfer their funds from one bank to another to increase their overall 

coverage, thereby reducing the deposit rate sensitivity of deposits. Also, it increases the cost of 

the depositors by inducing them to open several accounts to achieve a higher level of coverage 

(in those countries where there is no restriction on the number of accounts held by a depositor). 

Hence, limiting insurance coverage may have a negative effect, not only on banking stability but 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

69 

also on overall social welfare. Finally, for countries setting up coverage limit for the first time, or 

revising the amount of the limited coverage, a rule of thumb may be to set a limit that fully 

covers a high percentage of depositors or deposit accounts (90-95% of depositors) while leaving 

a majority portion of the value of deposits uninsured (Garcia, 1999). 

In India, the DICGC Act, 1961 empowers the DICGC to change the coverage limit with 

the prior approval of the Central Government. Since its inception, the DICGC has enhanced the 

coverage limit five times. In the first instance, the limit of Rs. 1,500 per depositor was increased 

to Rs. 5,000 in 1968, after the extension of coverage to co-operative banks. In the light of an 

increasing number of co-operative banks being converted into ‘eligible’ co-operative banks, the 

limit was further doubled to Rs. 10,000 in 1970. In 1976, with the enactment of the Regional 

Rural Banks (RRBs) Act, RRBs were brought under the purview of deposit insurance and 

subsequently, the insurance coverage was, once again, doubled to Rs. 20,000per depositor. The 

limit was further increased to Rs. 30,000 in 1980, and finally the limit was enhanced to Rs. 0.1 

million in 1993, considering the loss to the depositors due to the failure of Bank of Karad, which 

was involved in the Harshad Mehta scam of 1992 (DICGC Act 1961, 2006).There is no visible 

pattern in the periodicity of such changes, which suggests that the increments in the coverage 

limit were either undertaken in response to the extension of coverage to new groups of banks or 

to pacify the public during bank distress.   

Since 1993, the limit of Rs. 0.1 million had been kept intact. In the wake of the recent 

announcement to enhance the coverage limit to Rs. 0.5 million, it is essential to understand if this 

five-fold increase is justified. 

 

Objective and Hypotheses 

The objective of this study is to determine the adequacy of the coverage limit of the Indian 

deposit insurance system, by studying the movement of variables of interest over the sample 

period of 1993-94 to 2017-18. For this, the following hypotheses are framed and tested: 

 

H1: There is no significant trend in India’s real coverage limit during the sample period. 

 

H2: There is no significant trend in India’s coverage ratio during the sample period. 

 

The study also compares the deposit coverage limit and its changes in India, with that of 

countries having similar deposit insurance characteristics, at three points of time: December 

2003, December 2010, and December 2017. For this, the following hypotheses are framed and 

tested: 

 

H3: There is no difference between the change in coverage limit of India and the average change 

in coverage limit of comparable countries from 2003 to 2010. 

 

H4: There is no difference between the change in coverage limit of India and the average change 

in coverage limit of comparable countries from 2010 to 2017. 

 

H5: There is no difference between the coverage ratio of India and the average coverage ratio of 

comparable countries in 2003. 

 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

70 

H6: There is no difference between the coverage ratio of India and the average coverage ratio of 

comparable countries in 2010. 

 

H7: There is no difference between the coverage ratio of India and the average coverage ratio of 

comparable countries in 2017. 

 

By testing these hypotheses, the study seeks to investigate whether the recent five-foldincrease in 

deposit insurance coverage limit of India is justified or not. 

 

METHOD 

Data and Sample 

The study relies on secondary data for analysis. The data for the coverage limit of India for the 

sample period has been extracted from the amendments to DICGC Act, 1961 (Deposit Insurance 

and Credit Guarantee Act 1961, 2006). To study this coverage limit, the consumer price index 

(CPI) for India (base: 2010) has been collected from the World Bank Open Database 

(https://data.worldbank.org/) for the sample period 1993-94 to 2017-18. The coverage ratio, one 

of the most important variables of deposit insurance, has been calculated using GDP per capita 

for India (base: 2004-05) from 1993-94 to 2007-08, based on total GDP at current prices and the 

population of India, available in the Reserve Bank of India (RBI) Handbook of Statistics on the 

Indian Economy (Reserve Bank of India, 2018). From 2008-09 to 2017-18, the value of coverage 

ratio has been extracted from the annual reports of DICGC. The sample period of study starts 

from 1993-94 because this year witnessed the last increase in India’s deposit insurance coverage 

limit, from Rs. 30,000 to Rs. 1,00,000 per depositor. Hence, the year acts as a reference point for 

studying the coverage limit for subsequent years.  

As for the countries included in the sample for comparison, the deposit insurance 

characteristics of each country have been sourced from the Deposit Insurance Survey 2018 

conducted by the International Association of Deposit Insurers (Note 3). The coverage limit of 

these countries (in $) has been extracted from two sources: The Deposit Insurance Survey (IADI, 

2018) and the database provided by Demirgüç-Kunt, Kane and Laeven (2014). For calculation of 

coverage ratio of these countries, GDP per capita (in $) has been collected from the World Bank 

Open Database. This data for the sampled countries has been extracted for only three periods of 

time: December 2003, December 2010, and December 2017. These three periods allow us 

comparison over a consistent 7-year period from December 2003 to December 2010 and 

December 2010 to December 2017, and at the same time, these take into account the pre-crisis 

and post-crisis periods. 

The countries chosen to be included in the sample have been determined through a 

‘Comparable Characteristics’ driven process. Under this process, all the countries that responded 

to the IADI Deposit Insurance Survey 2018 have been compared to India based on certain 

characteristics of a deposit insurance system. On the basis of literature review and available 

databases, we identified 8 characteristics of a deposit insurer that play a big role in shaping the 

system (see Appendix A for details). Out of these 8 characteristics, those countries which had at-

least 5 characteristics similar to that of India have been included in the sample. The cut-off of 5 

characteristics has been taken to ensure similarity in more than 50% of the selected 

characteristics. 

For comparing the average change in coverage limit across countries, the number of 

countries in the sample is 43 for the period December 2003 to December 2010, and the number is 

https://data.worldbank.org/


https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

71 

61 for the period December 2010 to December 2017. The difference in the number of countries 

in the sample arises because many countries established a system of deposit insurance after the 

global financial crisis. For comparing the average coverage ratio across countries at three time 

periods, the number of countries sampled is 47 for December 2003, and 61 for December 2010 

as well as December 2017. 

 

Methodology  

For analyzing the adequacy of the deposit insurance coverage limit of India, the study uses 

regression analysis, in a semi-log form. A semi-log regression equation, wherein we take the 

logarithm of the dependent variable, allows us to study the impact of a unit change in the 

independent variable on the rate of growth of the dependent variable. For this, two variables are 

employed, the real value of coverage limit, and the coverage ratio of deposit insurance in India. 

To study their movement, we use a semi-log regression equation with time trend: 

log(yt)= α + β.t + Ɛt                             (1) 

 

Where, log(yt) is the logarithm of the variable of interest at time t, i.e. real coverage limit, and 

coverage ratio t ranges from 1993-94 to 2017-18 and has been coded as 1,2,3, etc. 

 

α is the intercept, which represents the percentage change in the dependent variable at t = 0 

 

β is the slope coefficient, which represents the compound annual growth rate (CAGR). The 

CAGR is the average annual rate at which a variable grows from its initial value to its final 

value, assuming that the returns (if any) each year are invested back into the system, and 

compounded over the life of the variable. 

Ɛt is the error term 

 

The details of the two dependent variables used are as follows: 

i) The real value of the coverage limit of Rs. 1,00,000, introduced in the year 1993-94, for the 

sample period of 1993-94 to 2017-18. The real value of coverage limit for each year is calculated 

as: 

The real coverage limit for year t = CPI for the year 1993-94 * Nominal coverage limit for year t  

   CPI for year t 

 

This variable brings down the value of the coverage limit in India during the sample period to its 

real value that is the value after taking into account the impact of inflation. A fall in the value of 

this variable is indicative of the deterioration in the worth of the benefit that the depositors get 

from the deposit insurance scheme. A rise in the value, on the other hand, indicates that the 

benefits offered by the insurance scheme beat the rate of inflation. A constant value indicates that 

the coverage limit is in line with the movement in inflation rates. This variable assumes 

relevance because the rate of inflation is an important macro-economic variable, used for 

determining the purchasing power of consumers. 

 

ii) The coverage ratio (CR) of deposit insurance in India for the sample period 1993-94 to 2017-

18. The coverage ratio is calculated as: The coverage ratio for year t = Coverage limit for year t 

                  GDP per capita for year t  

 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

72 

The coverage ratio is one of the most widely used measures of the adequacy of deposit 

insurance coverage, accepted and calculated across nations that have established a DIS. This 

variable is relevant because it measures the coverage limit of a country with respect to the per 

capita gross domestic product (GDP) of that country. Changes in the coverage ratio indicate if 

the coverage limit is keeping in line with the national income of the country.  

From 1993-94 to 2007-08, the coverage ratio has been calculated using the above 

method. However, from 2008-09 to 2017-18, the data on coverage ratio has been sourced from 

the annual reports of DICGC. 

To compare the coverage limit of India with that of sample countries we use the single-

sample t-test. This test enables us to determine if the average value of the variables in sample 

countries is equal to the value of the variables in India. In other words, this statistical tool helps 

to determine the situation of India in comparison to other countries with similar deposit 

insurance design features.  

 

The following variables are calculated and analyzed:  

 

i) The average change in coverage limit from December 2003 to December 2010, and from 

December 2010 to December 2017, for the sampled countries. The change in coverage limit is 

calculated as: 

Change in coverage limit from period t to period h =  Coverage limit at h – Coverage limit at t 

Coverage limit at t 

 

Change in coverage limit has been used instead of the absolute amount of coverage limit, due to 

the difference in the currency of countries in the sample. The percentage change in coverage 

limit removes the unit of currency and hence makes comparison feasible. 

 

ii) The average coverage ratio as of December 2003, December 2010, and December 2017 for a 

sample of countries. The formula for coverage ratio suggests that the ratio is independent of the 

unit of measurement of currency, and hence, is comparable across countries.  

The study compares the average change in coverage limit of sampled countries over the years 

with the change in coverage limit of India and further compares the average coverage ratio of 

sampled countries at different points in time with the coverage ratio of India using the single-

sample t-test. 

 

RESULTS 

The International Monetary Fund (IMF) Working Paper (Garcia, 1999) suggests that the 

coverage limit should be such that it covers a large number of total accounts but a relatively 

small amount of total deposits in value. This trade-off ensures that the aim of protecting small 

depositors is fulfilled, without compromising on market discipline (International Association of 

Deposit Insurers [IADI], 2013).  

In India, the number of fully protected accounts as a percentage of total insured accounts 

with all insured banks has been between 90% to 100% since 1970. As of 2017-18, 91.45% of the 

total eligible accounts were fully protected. This high depositor coverage has been used as a 

justification for no change in the deposit insurance coverage limit since 1993.The value of 

deposits covered by insurance, as a percentage of the total insurable deposits, stood at 29.24% as 

of 2017-18. These two values show that as per the suggestions made by IMF, the coverage limit 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

73 

of Rs. 1,00,000 was apt. However, this limit was introduced in the year 1993-94 and had 

remained unchanged over the past 27 years. The scope and extent of coverage should be 

reviewed regularly, and periodic adjustments should be made to take into account inflation and 

changes in the composition of deposits, as well as the introduction of new deposit instruments 

(IADI, 2013).  

Over the past 25 years from 1993-94 to 2017-18, inflation has led to deterioration in the 

real coverage limit, which stood approximately at Rs. 20,000 per depositor as of 2017-18. The 

real coverage limit has a significant downward trend with a CAGR of -6.6% p.a. (β=-0.066, 

p<0.000), indicating that the effective coverage for the deposits in India has fallen sharply 

(Hypothesis 1). Indexing the coverage limit to inflation, as is done in the USA and Mexico, is 

one alternative to ensure that the coverage limit adjusts automatically to maintain the real value 

of coverage. If we index the coverage limit of Rs. 0.l million in 1993-94 to the relative inflation 

in 2017-18, the coverage limit should have been increased to a whopping Rs. 0.49 million in 

2018.However, the continuous adjustments may be difficult and costly to implement and may 

lead to confusion among the depositors.  

A widely accepted measure of the adequacy of the coverage limit is the coverage ratio, 

defined as the ratio of coverage limit to GDP per capita. In India, the coverage ratio for the year 

ended 2018 was 0.9, as against the world average of 2 (IADI, 2013). Although there is no 

international benchmark or policy recommendation regarding the coverage ratio, it should be 

comparable to the global scenario, taking into account the differences in the banking conditions 

of a particular country. The coverage ratio of India has a significant downward trend with a 

CAGR of -10.31% p.a. (β=-0.103, p<0.000), indicating that the coverage limit has failed to keep 

up with the increasing per capita GDP (Hypothesis 2). This issue can be dealt with by appraisal 

of the coverage limit at regular intervals to adjust it to the changes taking place in the financial 

markets.  

 

Cross-Country Comparison 

Moving on to the cross-country analysis, the study compares the change in coverage limit of 

India as well as the coverage ratio in India with a sample of countries having similar deposit 

insurance features. To ensure consistency in the coverage ratio being used for comparison, we 

calculate the coverage ratio of India for December 2003, 2010, 2017 from the same database 

which is used for calculation of coverage ratio of all other countries.  

The results of the t-tests have been presented in Table 1, followed by a discussion on their 

interpretation. 

 

Table 1. Results of t-tests 

 

Comparison with Results of t-test 

The average change in coverage limit from December 2003 to December 2010 t2003-10(42) =4.558, p<0.000* 

The average change in coverage limit from December 2010 to December 2017 t2010-17(60) =3.628, p<0.000* 

Average coverage ratio as at December 2003 t2003(46) =-0.043, p=0.965 

Average coverage ratio as at December 2010 t2010(60) =3.002, p<0.003* 

Average coverage ratio as at December 2017 t2017(60) =4.973, p<0.000* 

Note. *Significant at 1% level of significance 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

74 

India did not change (increase or decrease) its coverage limit over the 7 years from 

December 2003 to 2010, whereas an average change in coverage limit of 213.56% was 

undertaken by the countries in our sample, which is significantly different from that of India 

(Hypothesis 3). It may be argued that many countries increased their coverage limit in response 

to the global financial crisis of 2008. Therefore, we further compare India’s change in coverage 

limit from the period after the crisis (i.e. from December 2010) till December 2017. Similar 

results were found for this comparison over these 7 years. While comparable countries increased 

their limit by 53.8% on an average, India has undertaken no such action, and the difference is 

significant (Hypothesis 4).  

As far as coverage ratio is concerned, for December 2003, the average coverage ratio of 

countries in our sample is 3.80, which is not significantly different from India’s coverage ratio of 

3.84 (Hypothesis 5). On the contrary, for December 2010 and 2017, the average coverage ratio 

of sampled countries (5.16 and 4.35 respectively) is significantly different from and higher than 

the coverage ratio of India (1.52 and 0.81 respectively) (Hypothesis 6 and 7). The results suggest 

that while India has made no efforts to improve its coverage ratio, the same is not true for other 

similar countries. Moreover, India’s coverage ratio, which was similar to the average of other 

countries up till 2003, has taken a sharp dip over the years and stood way below the average 

coverage ratio of other comparable countries.Figures1, 2, and3 indicate the falling position of 

India’s coverage ratio vis-à-vis its peers over the 14-year period from 2003 to 2017.  

 

 
Figure 1. Coverage Ratio of India and Comparable Countries in 2003 

Note.Yemen, Tajikistan, Nepal, Montenegro, Moldova, Malaysia, Kyrgyz Republic, Hong Kong 

SAR, Ecuador, Brunei, Barbados, Bahrain, and Afghanistan established their deposit insurance 

systems after 2003. They are included in the above graph just to ensure consistency in 

comparison with the years 2010 and 2017. 

Source: Authors’ calculations based on Demirgüç-Kunt et al. (2014), IADI (2018), and World 

Bank Open Data 
 

0

5

10

15

20

25

30

P
ar

ag
u

ay

M
ex

ic
o

N
ic

ar
ag

u
a

M
ac

ed
o
n

ia

P
er

u

Z
im

b
ab

w
e

H
o
n

d
u

ra
s

T
u

rk
ey

Jo
rd

an
 

It
al

y

V
ie

tn
am

L
ao

 P
D

R

In
d

ia

A
lg

er
ia

M
o
ro

cc
o

K
o
re

a

C
o
lo

m
b
ia

A
rg

en
ti

n
a

K
en

ya

L
it

h
u

an
ia

B
an

g
la

d
es

h

E
l 
S

al
v
ad

o
r

U
n

it
ed

 S
ta

te
s

Ja
p

an

B
ah

am
as

B
ra

zi
l

C
ro

at
ia

S
u

d
an

P
o
rt

u
g

al

P
h

il
ip

p
in

es

U
n

it
ed

 K
in

g
d

o
m

H
u

n
g

ar
y

C
an

ad
a

Ja
m

ai
ca

G
u

at
em

al
a

B
o
sn

ia
 a

n
d

 H
er

ze
g

o
v
in

a

S
er

b
ia

R
u

ss
ia

n
 F

ed
er

at
io

n

E
st

o
n

ia

T
ri

n
id

ad
 a

n
d

 T
o
b
ag

o

F
in

la
n

d

N
ig

er
ia

B
el

g
iu

m

T
an

za
n

ia

N
et

h
er

la
n

d
s

Ir
el

an
d

S
w

it
ze

rl
an

d

L
u

x
em

b
o
u

rg

Y
em

en
 

T
aj

ik
is

ta
n

N
ep

al

M
o
n

te
n

eg
ro

M
o
n

g
o
li

a

M
o
ld

o
v
a

M
al

ay
si

a

K
yr

g
yz

 R
ep

u
b
li

c

H
o
n

g
 K

o
n

g
 S

A
R

E
cu

ad
o
r

B
ru

n
ei

B
ar

b
ad

o
s

B
ah

ra
in

A
fg

h
an

is
ta

n

C
o
v
er

a
g

e 
R

a
ti

o

Countries in Sample (Comparable Countries)


In

d
ia



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

75 

 
Figure 2. Coverage Ratio of India and Comparable Countries in 2010 

Source: Authors’ calculations based on Demirgüç-Kunt et al. (2014), IADI (2018), and World 

Bank Open Data 

 

 
Figure 3. Coverage Ratio of India and Comparable Countries in 2017 

Source: Authors’ calculations based on Demirgüç-Kunt et al. (2014), IADI (2018), and World 

Bank Open Data  

 

As of 2003, the coverage ratio of India was among the top 30% of all comparable 

countries. After 7 years, that is, in 2010, there was a drastic fall in India’s position, with it 

becoming part of the bottom 20%, and in another 7 years it worsened off to the bottom 15%.  

0

2

4

6

8

10

12

14

16

18

M
ex

ic
o

S
er

b
ia

L
it

h
u
an

ia

H
u
n

g
ar

y

E
st

o
n

ia

M
al

ay
si

a

M
ac

ed
o
n

ia

P
ar

ag
u
ay

Y
em

en
 

N
ic

ar
ag

u
a

M
o
n

g
o
li

a

P
o
rt

u
g

al

E
cu

ad
o
r

P
er

u

B
o
sn

ia
 a

n
d

 …

C
ro

at
ia

U
n

it
ed

 S
ta

te
s

P
h

il
ip

p
in

es

H
o
n

d
u
ra

s

N
ep

al

A
fg

h
an

is
ta

n

M
o
n

te
n

eg
ro

It
al

y

B
ra

zi
l

U
n

it
ed

 K
in

g
d

o
m

A
rg

en
ti

n
a

M
o
ro

cc
o

T
u
rk

ey

Jo
rd

an
 

B
el

g
iu

m

F
in

la
n

d

Ir
el

an
d

N
et

h
er

la
n

d
s

Ja
p

an

E
l 
S

al
v
ad

o
r

S
u
d
an

K
yr

g
yz

 R
ep

u
b
li

c

N
ig

er
ia

L
ao

 P
D

R

B
ah

am
as

C
an

ad
a

T
aj

ik
is

ta
n

R
u
ss

ia
n

 F
ed

er
at

io
n

K
o
re

a

T
an

za
n

ia

B
an

g
la

d
es

h

V
ie

tn
am

H
o
n

g
 K

o
n

g
 S

A
R

A
lg

er
ia

B
ah

ra
in

C
o
lo

m
b
ia

K
en

ya

In
d

ia

Ja
m

ai
ca

S
w

it
ze

rl
an

d

L
u
x
em

b
o
u

rg

B
ru

n
ei

G
u
at

em
al

a

B
ar

b
ad

o
s

T
ri

n
id

ad
 a

n
d

 …

M
o
ld

o
v
a

Z
im

b
ab

w
e

C
o
v
er

a
g

e 
R

a
ti

o

Countries in Sample (Comparable Countries)

0

2

4

6

8

10

12

14

16

18

Jo
rd

an
 

M
ex

ic
o

S
er

b
ia

C
ro

at
ia

Y
em

en
 

H
u

n
g

ar
y

B
ra

zi
l

M
o
n

te
n

eg
ro

L
it

h
u

an
ia

M
ac

ed
o
n

ia

P
ar

ag
u

ay

M
al

ay
si

a

E
st

o
n

ia

B
o
sn

ia
 a

n
d

 …

P
o
rt

u
g

al

E
cu

ad
o
r

P
er

u

N
ic

ar
ag

u
a

U
n

it
ed

 S
ta

te
s

A
lg

er
ia

H
o
n

d
u

ra
s

It
al

y

T
ri

n
id

ad
 a

n
d

 T
o
b
ag

o

P
h

il
ip

p
in

es

N
ep

al

U
n

it
ed

 K
in

g
d

o
m

B
el

g
iu

m

M
o
ro

cc
o

C
o
lo

m
b
ia

E
l 
S

al
v
ad

o
r

F
in

la
n

d

T
u

rk
ey

N
et

h
er

la
n

d
s

T
aj

ik
is

ta
n

A
fg

h
an

is
ta

n

Ja
p

an

K
yr

g
yz

 R
ep

u
b
li

c

L
ao

 P
D

R

R
u

ss
ia

n
 F

ed
er

at
io

n

B
ah

ra
in

M
o
n

g
o
li

a

C
an

ad
a

Ir
el

an
d

A
rg

en
ti

n
a

B
ah

am
as

K
o
re

a

V
ie

tn
am

H
o
n

g
 K

o
n

g
 S

A
R

B
ru

n
ei

S
w

it
ze

rl
an

d

L
u

x
em

b
o
u

rg

Ja
m

ai
ca

Z
im

b
ab

w
e

N
ig

er
ia

In
d

ia

B
an

g
la

d
es

h

B
ar

b
ad

o
s

S
u

d
an

T
an

za
n

ia

K
en

ya

G
u

at
em

al
a

M
o
ld

o
v
a

C
o
v
er

a
g

e 
R

a
ti

o

Countries in Sample (Comparable Countries)

  

India 

  
In

di

a 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

76 

DISCUSSION 

Is the Deposit Insurance Coverage Increase in India Justified?  

The increase in the coverage limit in Indian deposit insurance has come almost 27 years after the 

last revision. During this period, a number of variables, such as the proportion of fully protected 

accounts, the value of deposits insured, real coverage limit, and coverage ratio have declined 

substantially. In real terms, the coverage limit had dropped to 20% of its initial value, and the 

coverage ratio remained less than 1 for several years. While India’s coverage was higher than 

most of its peers in the 1990s, it had plummeted from the top to the bottom in recent years. 

Considering this, the enhancement in the coverage limit from Rs. 0.1 million to Rs. 0.5 million 

per depositor, is a welcome move.  

One may ask if the increase in coverage by five times is sufficient or not. The appropriate 

amount of change is, however, still a matter of debate. As per IMF, two times per capita income 

can be taken as a rough rule of thumb for determining the appropriate coverage limit (Garcia, 

1999). If we were to provide insurance as per IMF’s rule of thumb, the coverage limit should 

have been Rs. 0.2 million approximately for the year ended 2018. On the other hand, the Report 

of the Committee on Customer Service in Banks (Reserve Bank of India, 2011) suggested an 

increase in the coverage limit to Rs. 0.5 million to encourage individuals to keep their deposits in 

banks. On the contrary, the Narasimham Committee Report on the Banking Sector Reforms 

(Reserve Bank of India, 1998), as well as the Report of the Working Group on Reforms in 

Deposit Insurance in India (Reserve Bank of India, 1999) recommended that there is no need to 

increase the coverage limit beyond Rs. 0.1 million. However, these recommendations were made 

just 5 to 6 years after the improvement in the coverage limit from Rs. 30,000, and that too at a 

time when the coverage ratio of India’s deposit insurance system was one of the highest amongst 

other countries. Not too many studies have been conducted on the adequacy of coverage limit. 

However, reports of the Reserve Bank of India support the finding of our study, which states that 

the coverage limit should be enhanced. After the increase in coverage, India would, once again, 

feature among the top 30% of comparable countries in terms of deposit insurance coverage. 

Hence, the five-fold increase in the coverage limit seems justified. 

However, an increase in coverage limit is not a decision that can be taken in isolation 

from other policy variables. One needs to calculate the impact of an increase in coverage limit on 

the sufficiency of the deposit insurance fund. An excessive or undesirable increase in the 

coverage limit may make the fund unviable in extreme situations, such as a contagious banking 

panic. Since a major portion of the deposit insurance fund comprises premium contributions in 

many countries, the decision to raise the coverage limit may have a direct impact on the premium 

charged from banks. Currently, India charges the same rate of premium on the deposits of all 

banks, irrespective of their risk profiles- a practice which is called the flat-rate premium system. 

However, it has to be realized that simply raising the level of insurance coverage, in a system of 

flat-rate premium structure, may aggravate the problem of moral hazard among banks (Shiers, 

1994). In such a situation, a switch to a risk-based premium system may become indispensable. 

The Report of the Committee on Differential Premium System for Banks in India (Reserve Bank 

of India, 2015) provided extensive recommendations for the adoption of a risk-based premium 

structure suitable to India. 

Experience also suggests that more often than not, countries enhance their deposit 

insurance in the aftermath of a banking crisis. Many countries expanded the scope and limit of 

their deposit insurance in response to the global financial crisis, including the United States of 

America (USA), where the insurance limit was increased from $0.1 million to $0.25 million. In 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

77 

underdeveloped countries as well, such as Nigeria, apart from capital injections, deposit 

insurance has been expanded following the financial crisis (Oyerinde, 2017). In India, the 

decision to revise the coverage to Rs. 0.5 million has been taken in the wake of the PMC bank 

crisis. However, enhancing the coverage limit as a reaction to a bank failure may turn out to be 

only partially successful in preventing bank runs, and may lead depositors to believe that the 

system does not have any credible limits (Boyle, Stover, Tiwana & Zhylyevskyy, 2015). The 

approach, instead, should be to undertake a periodic review of the coverage at specified intervals 

and adjust it over time to reflect the changes in certain economic variables such as per capita 

GDP and rates of inflation. As per Bank Regulation and Supervision Survey (World Bank, 

2019), in several countries, including the USA and Japan, the coverage limit is linked to 

inflation. In some countries, such as Indonesia, the limit is indexed to GDP. The policymakers 

also need to make sure that these adjustments are neither very frequent, as it may create 

confusion and implementation problems, nor too rare, as it may create doubt on the ability of the 

banking system to withstand a crisis.  

The one-time, episodic increase in coverage limit is, therefore, not sufficient in isolation. 

Such an increase needs to be accompanied by a careful evaluation of the viability and the 

strength of the deposit insurance system as a whole. 

 

CONCLUSION 

Deposits are one of the key inputs for the banking industry, and mobilization of these deposits is 

an essential function of banks (Nwangolo & Ogechi, 2018). Since banks hold liquid liabilities in 

the form of demand deposits which are further used for investment in illiquid assets, they expose 

themselves to liquidity risk, which may materialize if many depositors together wish to withdraw 

money from their accounts. This primary function performed by banks makes them vulnerable to 

bank runs. The responsibility of banks to safeguard their depositors and ensure the stability of the 

banking system leads to stricter regulations for them (Bezawada, 2020) and also entitles them to 

deposit insurance.  

The evidence of deposit insurance from India suggests that the country, with the second 

oldest deposit insurance system in the world, was in dire need of a coverage limit upgrade. A 

five-fold increase in the country’s deposit insurance coverageis a move that has been accepted 

with open arms. The results indicate that the coverage limit of India’s deposit insurance had 

fallen way behind the inflation levels. It was also insufficient as far as the per capita GDP of 

India is concerned. Changes in macroeconomic policy variables, such as inflation and per capita 

GDP, along with a steep fall in India’s coverage limit as well as coverage ratio vis-à-vis other 

countries with similar deposit insurance features, warrant this increase. However, this is not an 

all-in solution. It has to be ensured that such a revision is not reduced to a mere cosmetic 

exercise.  

Countries that are contemplating a modification in their deposit insurance coverage 

should, therefore, consider a few essential pointers. First, since enhancement of coverage 

increases the burden of the deposit insurer, efforts have to be made to ensure the viability of the 

insurance fund. Second, enlarging the fund would require additional premium contributions from 

banks, and moving towards a more sustainable risk-based premium structure. Third, a policy 

framework to review and revise the coverage limit as per the changing dynamics of the banking 

industry and the economy needs to be formulated. Such a revision shall take into account the 

average level of deposits in insured banks, the rate of inflation, per capita GDP, and types of 

deposit instruments covered, among other things. Lastly, steps must be taken to move from a 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

78 

reactive system to a proactive system, where policy variables are reviewed periodically, instead 

of being reviewed in the aftermath of a bank or financial crisis. Which specific variables need to 

be considered for determining the coverage limit, and how often should the limit be changed, are 

questions which are still open for deliberations.  

This study uses basic statistical tools and simple methods to analyze the trend of coverage 

limit in India, and determine its adequacy. Although, for comparison, the study attemptsto 

include countries that share important deposit insurance traits with India, yet these countries 

differ in terms of other macroeconomic aspects. Hence, these limitations should be kept in mind 

while interpreting the results. The findings and recommendations of this study are relevant for all 

countries with an explicit system of deposit insurance, as it would allow them to examine their 

deposit insurance coverage limit and the system as a whole in the light of multiple other policy 

variables such as market discipline, depositor protection, deposit insurance fund, premium and 

the like. 

 

REFERENCES 

Akani, H. W., & Oparaordu, B. (2018). Determinants of commercial banks credit to the domestic 

economy in Nigeria: Examinations of dynamics principles. Indian Journal of Finance 

and Banking, 2(2), 26-41. https://doi.org/10.46281/ijfb.v2i2.96 

Beck, T. (2002). Deposit insurance as private club: Is Germany a model?.The Quarterly Review 

of Economics and Finance, 42(4), 701-719. https://doi.org/10.1016/S1062-

9769(02)00122-9 

Bezawada, B. (2020). Corporate Governance Practices and Bank Performance: Evidence from 

Indian Banks. Indian Journal of Finance and Banking, 4(1), 33-41. 

https://doi.org/10.46281/ijfb.v4i1.502 

Boyle, G., Stover, R., Tiwana, A., & Zhylyevskyy, O. (2015). The impact of deposit insurance 

on depositor behavior during a crisis: A conjoint analysis approach. Journal of Financial 

Intermediation, 24(4), 590-601. https://doi.org/10.1016/j.jfi.2015.02.001 

Cecchetti, S. G. (2008). Deposit Insurance. In S. N. Durlauf, & L. Blume (Ed.), The New 

Palgrave Dictionary of Economics (2nd ed.,pp. 444-446). London, England: Palgrave 

Macmillan. 

DeLong, G., & Saunders, A. (2011). Did the introduction of fixed-rate federal deposit insurance 

increase long-term bank risk-taking?. Journal of Financial Stability, 7(1), 19-25. 

https://doi.org/10.1016/j.jfs.2008.09.013  

Demirgüç-Kunt, A., & Detragiache, E. (2002). Does deposit insurance increase banking system 

stability? An empirical investigation. Journal of Monetary Economics, 49(7), 1373-1406. 

https://doi.org/10.1016/S0304-3932(02)00171-X 

Demirgüç-Kunt, A., & Huizinga, H. (2004). Market discipline and deposit insurance. Journal of 

Monetary Economics, 51(2), 375-399. https://doi.org/10.1016/j.jmoneco.2003.04.001 

Demirgüç-Kunt, A., & Kane, E. J. (2002). Deposit insurance around the globe: Where does it 

work? Journal of Economic Perspectives, 16(2), 175-195. 

https://doi.org/10.1257/0895330027319 

https://doi.org/10.46281/ijfb.v2i2.96
https://doi.org/10.46281/ijfb.v4i1.502
https://doi.org/10.1016/j.jfs.2008.09.013


https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

79 

Demirgüç-Kunt, A., Kane, E. J., & Laeven, L. (2014). Deposit insurance database. Policy 

Research Working Paper No. 6934. The World Bank. https://doi.org/10.1596/1813-9450-

6934 

Deposit Insurance and Credit Guarantee Act 1961. (2006, September). Retrieved from 

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/dicgc_act.pdf 

Deposit Insurance and Credit Guarantee Corporation. (Several issues). Annual report. Retrieved 

from https://www.dicgc.org.in/PUB_AnnualReports.html 

Garcia, G. G. (1999). Deposit insurance: A survey of actual and best practices. IMF Working 

Paper No. 99/54. International Monetary Fund. Retrieved from 

https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Deposit-Insurance-A-

Survey-of-Actual-and-Best-Practices-2982 

Gololo, I. A. (2017). An evaluation of the role of commercial banks in financing small and 

medium scale enterprises (SMEs): Evidence from Nigeria. Indian Journal of Finance and 

Banking, 1(1), 16-32. https://doi.org/10.46281/ijfb.v1i1.82 

 

Hooks, L. M., & Robinson, K. J. (2002). Deposit insurance and moral hazard: Evidence from 

Texas banking in the 1920s. Journal of Economic History, 62(3), 833-

853.https://doi.org/10.1017/s0022050702001109  

International Association of Deposit Insurers. (2013). Enhanced guidance for effective deposit 

insurance systems: Deposit insurance coverage. Guidance Paper. Retrieved from 

https://www.iadi.org/en/assets/File/Papers/Approved%20Guidance%20Papers/IADI_Cov

erage_Enhanced_Guidance_Paper.pdf 

International Association of Deposit Insurers. (2018). IADI Annual Survey. Retrieved from 

https://www.iadi.org/ 

 

Ioannidou, V. P., & Penas, M. F. (2010). Deposit insurance and bank risk-taking: Evidence from 

internal loan ratings. Journal of Financial Intermediation, 19(1), 95-115. 

https://doi.org/10.1016/j.jfi.2009.01.002  

Kim, I., Kim, I., & Han, Y. (2015). Deposit insurance, banks’ moral hazard, and regulation: 

Evidence from the ASEAN countries and Korea. Emerging Markets Finance and Trade, 

50(6), 56-71. https://doi.org/10.1080/1540496X.2014.1013875 

Lee, W. S., & Kwok, C. C. (2000). Domestic and international practice of deposit insurance: A 

survey. Journal of Multinational Financial Management, 10(1), 29-62. 

https://doi.org/10.1016/S1042-444X(99)00018-3 

Ngalawa, H., Tchana, F. T., & Veigi, N. (2016). Banking instability and deposit insurance: The 

role of moral hazard. Journal of Applied Economics, 19(2), 323-350. 

https://doi.org/10.1016/S1514-0326(16)30013-7 

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/dicgc_act.pdf
https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Deposit-Insurance-A-Survey-of-Actual-and-Best-Practices-2982
https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Deposit-Insurance-A-Survey-of-Actual-and-Best-Practices-2982
https://doi.org/10.46281/ijfb.v1i1.82
https://doi.org/10.1017/s0022050702001109
https://www.iadi.org/
https://doi.org/10.1016/j.jfi.2009.01.002
https://doi.org/10.1016/S1514-0326(16)30013-7


https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

80 

Nwangolo, A., & Ogechi, B. (2018). Financial Deepening and Deposit Mobilization of 

Commercial Banks in Nigeria: A Time Variant Model. Indian Journal of Finance and 

Banking, 2(2), 1-14. https://doi.org/10.46281/ijfb.v2i2.94 

 

Oyerinde, A. S. (2017). Bank Performance versus Recession Indicators: A Linear Cointegration 

Approach. Indian Journal of Finance and Banking, 1(1), 8-15. 

https://doi.org/10.46281/ijfb.v1i1.81 

 

Reserve Bank of India. (1998). Narasimham committee report on the banking sector reforms. 

Retrieved from https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/24157.pdf 

Reserve Bank of India. (1999). Report of the working group on reforms in deposit insurance in 

India. Retrieved from 

https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?FromDate=11/04/99&SEC

ID=12&SUBSECID=2 

Reserve Bank of India. (2011). Report of the committee on customer service in banks. Retrieved 

from https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=645 

Reserve Bank of India. (2015). Report of the committee on differential premium system for banks 

in India. Retrieved from 

https://m.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=825 

Reserve Bank of India. (2018). Handbook of statistics on the Indian economy. Retrieved from 

https://rbi.org.in/Scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%

20on%20Indian%20Economy 

Rezina, S., Chowdhury, R. S., & Jahan, N. (2020). Non-Performing Loan in Bangladesh: A 

Comparative Study on the Islamic Banks and Conventional Banks. Indian Journal of 

Finance and Banking, 4(1), 76-83. https://doi.org/10.46281/ijfb.v4i1.539 

 

Shiers, A. F. (1994). Deposit insurance and banking system risk: Some empirical evidence. The 

Quarterly Review of Economics and Finance, 4, 347-361. https://doi.org/10.1016/1062-

9769(94)90019-1 

Shy, O., Stenbacka, R., & Yankov, V. (2016). Limited deposit insurance coverage and bank 

competition. Journal of Banking & Finance, 71, 95-108. 

https://doi.org/10.1016/j.jbankfin.2016.05.002 

Singh, R., Roy, S., & Pandiya, B. (2020). Antecedents of Financial Inclusion: Evidence from 

Tripura, India. Indian Journal of Finance and Banking, 4(2), 79-92. 

https://doi.org/10.46281/ijfb.v4i2.745 

Sitharaman, N. (2020). Budget Speech. Retrieved from 

https://www.indiabudget.gov.in/doc/Budget_Speech.pdf 

Wagster, J. D. (2007). Wealth and risk effects of adopting deposit insurance in Canada: Evidence 

of risk shifting by banks and trust companies. Journal of Money, Credit and 

Banking, 39(7), 1651-1681. https://doi.org/10.1111/j.1538-4616.2007.00082.x  

https://doi.org/10.46281/ijfb.v2i2.94
https://doi.org/10.46281/ijfb.v1i1.81
https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/24157.pdf
https://m.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=825
https://doi.org/10.46281/ijfb.v4i1.539
https://doi.org/10.1016/j.jbankfin.2016.05.002
https://doi.org/10.46281/ijfb.v4i2.745
https://doi.org/10.1111/j.1538-4616.2007.00082.x


https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

81 

World Bank. (2019). Bank Regulation and Supervision Survey. Retrieved from 

https://datacatalog.worldbank.org/dataset/bank-regulation-and-supervision-survey#tab2 

 

NOTES 

Note 1. A nation-wide deposit insurance system was established in the USA in 1933, due to the 

failure of multiple banks during the Great Depression. 

Note 2. Eligible co-operative banks, as defined under Section 2(gg) of the DICGC Act, refers to 

those co-operative banks whose states or union territories have amended their Cooperative 

Societies Act to empower RBI to take certain actions superseding the Registrar of Cooperative 

Societies of the respective state/union territories. 

Note 3. The International Association of Deposit Insurers (IADI) is an association of countries 

around the world that have adopted an explicit system of deposit insurance. It was formed in the 

year 2002 with the objective of providing a platform to conduct research, provide guidance, 

share knowledge and promote international cooperation among countries in the field of deposit 

insurance. 

 

APPENDICES 

Appendix A: Determination of Countries to be included in the Sample 

Table 2 lists down the 8 characteristics of a deposit insurance system that have been selected as 

criteria for comparison with India’s deposit insurance system, along with their meaning and the 

number of countries whose DIS have features similar to that of India. 

 

Table 2. DIS Characteristics Selected for Comparison 

 

Characteristic 

used as 

Criteria 

Details No. of countries 

with characteristics 

similar to India 

Administration 

of DIS 

A DIS can be government legislated and administered, 

government legislated but privately administered, 

privately established and administered or administered 

by the central bank. 

72 

Mandate A country can choose to adopt one of the four system 

mandates: Pay-box, pay-box plus, loss minimizer, or 

risk minimizer. 

40 

Institutions 

covered 

The institutions that can become members of the DIS 

can vary from commercial banks, credit unions, co-

operative banks, investment banks, Islamic banks, rural 

banks, savings banks, to investment companies, 

securities companies, and other deposit-taking 

institutions. 

16 

Membership Membership to the DIS of a country can be mandatory 

or voluntary. 

108 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

82 

Types of 

deposit 

products 

eligible for 

coverage 

Countries may provide protection to savings account, 

checking account, certificate of deposits, traveler’s 

checks, money orders, foreign currency deposits, inter-

bank deposits, government deposits, and some other 

deposits which may be specified in the law and may be 

peculiar to the country. 

105 

Coverage per 

depositor per 

institution 

A DIS may set coverage limits per depositor per 

institution, or per depositor across all institutions, or 

may specify separate limits for different types of 

deposits. 

106 

Type of 

funding 

Funding of the deposit insurance fund can either be ex-

ante or ex-post or a combination of the two. 

98 

Method for 

levying 

premium 

The premium can be levied at a flat rate or at a variable 

rate or can be a combination of both. For some 

countries, no premium is levied due to the employment 

of ex-post funding. 

48 

 

 

As mentioned under the research methodology, we used a ‘Comparable Characteristics’ driven 

process for selecting the countries to be included in the sample for each analysis. For the 

comparison of the change in coverage limit from December 2010 to December 2017, as well as 

for the comparison involving coverage ratio for December 2010 and 2017, the sample size is 61. 

Figure 4 shows the process used for arriving at this sample size of 61 comparable countries. 

 



https://www.cribfb.com/journal/index.php/ijfb                           Indian Journal of Finance and Banking                        Vol. 4, No. 4; 2020 

 

83 

 

Figure 4. Process of Selection of Countries in the Sample 

 

Further, for the analysis concerning the comparison of coverage ratio as of December 

2003, the sample size reduced to 47, due to exclusion of 14 countries that were established after 

the year 2003. For the analysis concerning the comparison of the change in coverage limit from 

December 2003 to December 2010, in addition to excluding the above 14 countries, we also 

excluded 4 additional countries for which reliable data on coverage limit in 2003 was not 

available, thereby reducing the sample size to 43. 

 

 

Copyrights 

Copyright for this article is retained by the author(s), with first publication rights granted to the 

journal. This is an open-access article distributed under the terms and conditions of the Creative 

Commons Attribution license (http://creativecommons.org/licenses/by/4.0/). 

 

 

 

 

 

SAMPLE 

SIZE

• STEP-BY-STEP PROCESS

109 

• Total 111 countries responded to the IADI Survey 2018, excluding India, out of which
British Virgin Islands and South Africa are still in the process of fully establishing
their DIS. Hence, these 2 coutries have been excluded.

97

• Those countries for which the DIS was established after 2010, the comparison for
change in coverage limit and comparison for coverage ratio in 2003 and 2010 was not
possible. Hence, 12 such countries were excluded.

89

• There were 8 countries for which reliable information on coverage limit or coverage
ratio was missing for the relevant years. These were excluded for want of information.

77

• Out of the remaining 89 countries, we removed those countries from the sample which
had less than 5 characteristics similar to India.

61

• Furthermore, we excluded those countries from the sample which, despite satisfying
the cut-off of 5 similar characteristics, had certain peculiarities in their DIS in the form
of unlimited coverage, additional coverage limits for different class of
deposits, etc., which rendered them incomparable with India.


