Rising gold prices have created a significant insurance gap for customers storing jewellery in bank safety deposit lockers, as Reserve Bank of India regulations limit bank liability to just 100 times the annual locker rent. This coverage proves inadequate given current gold valuations, prompting financial experts to recommend separate insurance policies for valuable items.

RBI Liability Framework for Bank Lockers

The Reserve Bank of India has established clear guidelines regarding bank liability for valuables stored in safety deposit lockers. Banks bear responsibility for losses arising from specific incidents including fire, burglary, theft, robbery, dacoity, building collapse, and fraud committed by bank employees. However, this liability remains capped at 100 times the prevailing annual rent of the safety deposit locker.

According to Anooj Mehta, vice president at 1 Finance, "A bank's liability is capped at only 100 times the annual rent, which may not cover the actual value of gold stored today, especially considering the gold price rally. Moreover, banks have zero liability for natural calamities like floods or earthquakes."

Insurance Limitations and Customer Responsibilities

Banks cannot provide insurance coverage for locker contents due to regulatory restrictions and practical limitations. The RBI explicitly states that banks do not maintain records of locker contents, as only customers know what items are stored or removed. This creates a fundamental barrier to bank-provided insurance services.

Key regulatory restrictions include:

• Banks cannot offer insurance products to locker hirers directly or indirectly
• No liability exists for natural calamities or Acts of God
• Banks bear no responsibility for losses due to customer negligence
• Coverage gaps exist for earthquake, floods, lightning, and thunderstorm damage

Alternative Insurance Solutions

Customers must secure independent insurance coverage for valuable items stored in bank lockers. General insurance companies offer specialized jewellery insurance policies that provide comprehensive protection beyond bank liability limits.

Mukesh Pandey, director at Rupyaapaisa, explains that "Customers must find a separate insurance policy through an independent insurance policy provider that deals with general insurance for jewellery and other high-value items. Policies cover theft, burglary, fire, and natural disasters and will continue to provide coverage for gold items stored in a bank locker."

Gold Overdraft as Security Alternative

Gold overdraft facilities offer an innovative approach to securing valuable jewellery while maintaining liquidity access. Under this arrangement, banks assume complete liability for pledged gold, unlike the limited coverage provided for locker contents.

This option works particularly well for customers who view gold primarily as an investment rather than regularly-used jewellery. However, access limitations may make this unsuitable for frequently-worn ornaments.

Practical Recommendations

Financial experts suggest a multi-layered approach to gold security. For family-owned jewellery requiring regular access, high-grade electronic home safes combined with comprehensive insurance policies offer practical alternatives to bank lockers. The optimal solution depends on individual usage patterns, gold values, and risk tolerance levels.

Customers should evaluate their current locker arrangements against actual gold values and consider supplementary insurance coverage to bridge the significant gap between bank liability limits and replacement costs in today's market conditions.

Market participants are strongly advocating for durable liquidity management tools over additional rate cuts as the Reserve Bank of India prepares for its Monetary Policy Committee meeting on February 4-6. The banking system currently faces a significant liquidity deficit, prompting calls for targeted interventions to address funding stress.

Current Liquidity Situation

The banking system's liquidity position has deteriorated significantly, with market participants highlighting the urgent need for intervention. As of January 21, the system was experiencing a substantial deficit that has prompted widespread discussion among economists and treasury officials.

The liquidity strain stems from multiple factors including persistent RBI intervention in the foreign exchange market to curb excessive rupee volatility, strong credit growth, and advance tax outflows. An economist who attended recent discussions noted that "nobody was asking for a rate cut, and everybody was asking for liquidity only."

Preferred Liquidity Tools

Market participants have reached a strong consensus on the most effective instruments to address the current situation. Open market operations and dollar buy-sell swaps emerged as the favored tools, with participants moving away from reliance on short-term measures like variable-rate repo operations.

Open Market Operations

OMOs received widespread support during discussions, though participants acknowledged certain limitations. While many argued for increased bond purchases to inject rupee liquidity, others cautioned that banks' ability to sell securities faces constraints from liquidity coverage ratio requirements. One participant proposed that RBI consider publishing an indicative OMO calendar, possibly up to ₹5 trillion, for the next financial year to provide market predictability.

Currency Swap Operations

Dollar funding stress has become a significant concern, leading to strong support for buy-sell swaps as an effective and flexible tool. A treasury official explained: "We want more liquidity, and one of the primary tools which got discussed was buy-sell swaps because of dollar funding stress, and I think that's what the market evidently told them."

Several participants suggested that RBI could announce another tranche of long-tenor swaps, potentially ranging from $5-10 billion, to reassure markets ahead of March-end balance sheet tightening.

Additional Measures Under Consideration

Beyond the primary tools, market participants have proposed several supplementary measures to address liquidity concerns:

• Longer-term Variable-Rate Repos: Short-duration VRRs are seen as offering only transient relief
• Targeted Long-Term Repo Operations: TLTROs could provide more sustained liquidity support
• Cash Reserve Ratio Adjustment: A temporary 1% CRR cut was suggested, though some participants noted that with CRR already at 3%, RBI may prefer to preserve this tool for more acute crises

The central bank previously cut CRR by 1% in June 2025, implementing it in four equal tranches through November, which lowered the ratio from 4% to 3% and injected ₹2.50 trillion into the system.

Market Challenges and Outlook

Concerns over the government's borrowing program have added complexity to liquidity management discussions. Combined central and state borrowing for the next year is expected to reach approximately ₹30 trillion, underscoring the need for supportive liquidity management strategies.

The currency situation has also drawn attention, with the rupee hitting a fresh record low of 91.7450 against the dollar on Wednesday. Participants advised RBI to avoid verbal intervention on the rupee, preferring actions over commentary.

Despite the 125 basis points rate cut in 2025, government bond yields have continued rising. Since last month's 25 basis points cut announcement, the yield on the 10-year benchmark government bond has increased 13-15 basis points to 6.63%, highlighting the limited transmission of monetary policy easing.

MUFG Bank noted in a January 16 analysis: "From a rates perspective, we continue to think RBI is at the end of the rate-cutting cycle, and we forecast an extended hold in the repo rate at 5.25%. Capital outflows, FX intervention to cap INR weakness, coupled with elevated state government borrowing, are hindering transmission of RBI's rate cuts to the broader interest rate structure."