The Deputy Governor of RBI, Michael Debabrata Patra, Discusses Digital Payment Transformation and Deposit Insurance

The Deputy Governor of the Reserve Bank of India (RBI), Michael Debabrata Patra, highlighted that a transformative shift is underway in the digital payments sector. He noted that in more than 70 nations, domestic transactions are now swiftly processed at minimal cost for both the sender and the receiver due to the increasing availability of instant payment systems.

This evolution prompts deposit insurers to reassess the risks faced by depositors and member banks arising from the introduction of round-the-clock payment mechanisms. Patra emphasized that while digital advancements facilitate the global provision of financial services, they also raise concerns for deposit insurers dealing with banks that cater to a significant number of foreign depositors, especially in scenarios involving bank defaults and payouts.

Furthermore, the expanding scope of cross-border banking operations underscores the importance of collaboration among deposit insurers and other financial safety net participants across different jurisdictions. Patra articulated these insights during the International Association of Deposit Insurers’ (IADI) event organized by the Deposit Insurance and Credit Guarantee Corporation (DICGC) on ‘Navigating emerging challenges for deposit insurers and enhancing crisis readiness.’ DICGC currently provides coverage to 1,997 banks, comprising 140 commercial banks and 1,857 cooperative banks, positioning India as the second-largest country in terms of the number of covered deposit-taking institutions globally, trailing only behind the US, as per Patra’s statement.

In India, the existing deposit insurance coverage threshold stands at 25 lakh (approximately $6,000), safeguarding nearly 97.8% of deposit accounts and 43.1% of total deposit value. Patra also drew attention to the potential implications of central bank digital currencies (CBDCs) as potential safe havens during crises, which could impact the vulnerability of bank deposits, particularly uninsured funds, to sudden withdrawals and potential bank runs. He underscored that for deposit insurers, critical considerations include the extent to which CBDCs might replace traditional bank deposits, the delineation of responsibilities between central and commercial banks, and the level of privacy associated with CBDC usage.