Put in place frameworks to manage failure of deposit taking institutions: RBI Deputy Governor to deposit insurers

RBI Deputy Governor emphasises crisis preparedness for deposit insurers amidst rapid digitisation and emerging challenges in the financial landscape.

Reserve Bank of India (RBI) Deputy Governor Michael Patra on Tuesday (August 13, 2024) asked deposit insurers and other financial safety net participants to put in place frameworks to manage the failure of deposit-taking institutions and prevent potential contagion effects.

“With the rapid digitisation of financial transactions, the crisis can propagate quickly requiring emergency liquidity assistance and pre-emptive interventions in troubled institutions,” said Mr. Patra while delivering a keynote address at a conference on ‘Navigating Emerging Challenges for Deposit Insurers and Fortifying Crisis Preparedness’ in Jaipur.

To deal with the emerging challenges, he said, “The Deposit Insurance and Credit Guarantee Corporation (DICGC) is prioritising risk management, including contingency planning and crisis management frameworks.” Mr. Patra said that it is “imperative for deposit insurers and other financial safety net participants to put in place frameworks for crisis preparedness and management that enhance their ability to manage the failure of deposit-taking institutions while mitigating potential contagion effects.”

“Crises tend to propagate quickly and hence must include augmented provisions of emergency liquidity assistance and pre-emptive interventions in troubled institutions.” He also said the digital payments space is undergoing a silent revolution.

In over 70 countries today, domestic payments reach their destination in seconds at near-zero cost to the sender or the recipient with the growing availability of instant payment systems (IPS).

“Deposit insurers are having to re-evaluate operational risks posed to depositors and member banks from the emergence of these 24/7 payment systems,” he said.

While digital innovations can ease the cross-border supply of financial services, they can also increase the likelihood of deposit insurers being exposed to member banks with a significant share of non-domestic depositors and additional challenges in the case of a payout following bank default.