Delhi: The recent union budget proposal to increase the deposit insurance fivefold is expected to increase the confidence of the smaller operating Banks especially the private sector banks and small financial institutions and Cooperative Banks.
Against the back drop of an unstable financial system and the recent collapse of Punjab and Maharashtra cooperative (PMC), the budget proposed to raise deposit Insurance up to ₹5 lakh per depositor from the existing depositor of ₹1 lakh
According to the CEO of Fintech Start up PayQ, Shibabrata says, there will be a greater cover and is likely to assuage depositors and restore some faith in the financial system.
And this will create new measure, which will increase the deposits insured as a percentage of total deposit, which might turn around to be 40% to 50% from the 28% markup line as of fiscal year 2019
Shibabrata also believes that with the new change, the banks will get the benefit by increasing the confidence by the depositor. So far people kept only ₹1 lakh in such bank because of the low confidence on such banks and the recent banking scam by multiple banks, however as a situation have changed now, the depositor will deposit a large sum of money and possibly attract a higher interest rate.
He continues, for instance State Bank of India and HDFC Bank pays 6.1% and 6.3% interest rate, respectively however Suryoday Small Finance Bank and AU Small Finance Bank pay 8.25% and 7.5-7.63%, respectively on deposits of the same tenure. The general public perception towards that state-owned banks, notwithstanding their risk profile, have a sovereign guarantee on deposits.
Also, the increment of the deposit insurance cover up to ₹5 lakh will relief India and help the nation to become the highest ranking financial sector after Brazil and USA.
This will bring back trust in cooperative banks, although we expect it will be only the proposed reforms in regulation of cooperative banks that will make the circle complete," said Shibabrata Bhaumik, group Chief Executive Officer of PayQ.