Is your Money safe in the Bank & Role of Deposit Insurance to manage the Risk..

During COVID people realized across the globe the importance of health & also health insurance to manage the risk. Post COVID world health insurance started moving from Push product to Pull product.

Now, there is another event with failure of "Silicon Valley Bank" brought the attention of all individual & small businesses towards "Deposit Insurance" or "Deposit Protection". Deposit Insurance is the protection against Bank Deposit mainly supported by Central Bank & government to indemnify the losses when banks are unable to pay the debts when its due up to the limit of Sum Insured.

Insurance plays key role in Risk management & recover from unknow & unforeseen situation which is difficult to mitigate & avoid. Our key assumption as bank account holder that our money is always SAFE in hands of Bank managed by professional bankers and finance experts but there is possibility that some inherent assumption about financial investment & control can go wrong and trigger a series of domino effect of losses and banks are unable to return money to its depositors.

To make robust financial system many countries have setup the Deposit Protection scheme to manage such situation but most important point to note that this provides coverage up to Specific Amount ONLY and let's try to understand the same with reference to Hong Kong, Singapore & India. It's important for Depositor from this country to understand about Deposit Insurance & manage there deposits accordingly.

Hong Kong Deposit Insurance

• Managing Body - Hong Kong Deposit Protection Board
• Insured Banks or Scheme Bank - 152 Banks are covered as scheme members and it's important to check if your bank exist in the list.
• Coverage Amount - HK$500,000 Per Depositor Per Scheme Member
• Types of Deposits Covered- Conventional Deposits with Scheme Members or Banks such as saving deposit, current deposit, time deposit term < 5 Years.
• Insured - Deposits held by Individuals, Joint account & corporate.
• Exclusions - Time Deposit > 5 Years, offshore Deposits, Bearer Instrument & Foreign currency/Equity Linked Deposits
• Premium Payment - Premium for Insurance coverage is paid by Scheme members/banks on annual basis. Normally it's not charged directly to customers but part of bank expenses.

Singapore Deposit Insurance

• Managing Body - Singapore Deposit Insurance Corporation Limited
• Insured Banks or Scheme Bank - Banks covered under scheme for Deposit Insurance.
• Coverage Amount - SGD$ 75,000 Per Depositor Per Scheme Member. Please refer the link to understand definition of Depositor & Scheme members.
• Risk Details - Saving, Current, Fixed Deposit, CPF Investment & Retirement scheme & other products prescribed by MAS.
• Insured - Individuals, Sole Proprietorships, Partnerships, companies, societies & association.
• Exclusions - Foreign currency Deposits, Structured Deposits & Investment Products
• Premium Payment - Premium for Insurance coverage is paid by Scheme members/banks.

India Deposit Insurance

• Managing Body - Deposit Insurance & Credit Guarantee Corporation
• Insured Banks or Scheme Bank - 2000+ Banks are covered under deposit insurance as Insured Banks including commercial & co-operative banks.

• Coverage Amount - INR 500,000 Per Depositor Per Scheme Member including Principal & interest amount.
• Risk Details - Saving, Current, Fixed Deposit, Deposit of governments, inter bank deposits
• Insured - Individuals, Governments, Corporates & Other Banks
• Premium Payment - Premium for Insurance coverage is paid by Scheme members/banks.

The important points to consider for all Depositors to manage their risk are: -

1. Check if your bank is Scheme Member under Deposit Insurance and DON'T Deposit your money in banks which are not in the list.
2. To reduce your risk, try to keep Deposit amount less than the coverage amount in each individual Bank. For Hong Kong & India keep it less than half a Million in each Bank and for Singapore its SGD $75K.
3. If Deposit amount exceed coverage amount, then it's recommended to keep deposit in Large Banks in your countries with sovereign support and few countries also recognize some banks as "Too Big to Fail" with more control by central banks. State Bank of India, ICICI Bank & HDFC Bank are marked as D-SIB "Domestic systemically important bank" or "too big to fail" with additional common equity requirement.

This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated.

Shashi is an IT Executive with two decades of experience in insurance industry spanning across Digital Transformation & Delivery, Core Modernization, Legacy Transformation, Program Management, Business Consulting, IT Strategy, Pre-Sales & Insurtech Partnership.