Russian bank depositors get higher insurance

Russian bank depositors get higher insurance
Bank deposit insurance in Russia is to be increased from the current $22,000 to $32,000. Experts are concerned Russians may look for less secure and more profitable investments which could increase the risk to Russian banks.

State banking giants, like Sberbank, weren’t at all happy about the idea, as they fear this would end up with people in Russia preferring smaller players that offer higher interest but less security. And it would be the large Russian banks that’ll be largely paying for a risky strategy of its smaller rivals.

All Russian banks participating in the System for Deposit Insurance pay the same 0.1% of the total deposits insured to the fund which serves as a source to compensate Russians in case of a bank’s collapse. At the moment 897 Russian credit institutions out of the total of 978 are on the list of participants.

“I don’t’ think the decision to increase the insured sum was correct, as citizens should choose a bank taking into account not only the interest rate, but also its credibility, which is the most important,” Andrey Stepanenko, a member of board at Raiffeisen Bank, told Kommersant daily.

However, the initiative come with conditions that are intended to partially offset the risks and make Russians more selective in their choice of bank. One such condition proposed by the bankers would be to have the higherinsurance coverage apply only to the principal of the deposit, not theinterest. Another proposal was to provide partial coverage for the full deposit with interest, but only part of one and the other, for example 90%, so that the depositoris risking not only interest, but part of the principle as well, the paper explained.

The final restricting terms should be decided by the Agency for Deposit Insurance, the Central Bank of Russia and the country’s Finance Ministry. Proposals on the compensation mechanism are supposed to be worked out by October 15. The initiative needs to go through a number of legislative procedures before it comes into force.

Some experts believe that such an increase of insured sum looks logical, as it compensates for inflation. Also, the move looks positive, as this serves as “a signal to the citizens that better guarantees from the State points to increasing reliability of the Russian banking,” according to Vladimir Gasyak, deputy head of board at HCF Bank.