Use of enhanced DICGC cover for deposits In promotion materials

Recently, I come across ‘the increase in DICGC Cover on deposits’ being used by Jana Small Finance Bank and Suryoday Small Finance Bank in their promotion/information materials. Per se, nothing factually wrong in their exhibits about the DICGC cover and how it can be maximised (based on FAQs published by DICGC) by individual depositors. But the question is, can the insurance for depositors, which is available only in the event of liquidation by a bank, be used in fixed deposit canvassing? In the light of enhancement in deposit insurance cover from Rs. 1 lac to Rs.5 lacs, many other banks might also be already using a strategy like this or may follow suit. (As per DICGC site, after the enhancement in coverage, 50% of assessable deposits and 91% of total no. of deposits with the banks, are now protected deposits).  

It is possible that  banks in desperate need of funds in future, while offering higher rate interest on deposits, might display this as a risk mitigant, in their materials in an indirect manner, for a depositor to come in.Hence clear guidelines on the usage of  DICGC cover for deposits in advertisement/campaigns/ sharing of information should be laid down by RBI immediately. If I remember correct, in Singapore, insurance cover on deposits will appear in smaller fonts of size 8 and as a foot note only. Any information, which appears to be used for getting undue advantage of this factor is never allowed.

RBI should urgently look into the issue and bring out clear guidelines to the banks on the usage of DICGC cover on deposits in all their materials including advertisements, campaigns, information in websites or in branches, etc.

V..Viswanathan

04th November 2020

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