Consider the following statements:

1. A rupee Vostro account is an account that an Indian bank holds for a foreign bank in the domestic currency (rupee) to enable domestic banks to provide international banking services.

2. Insurance density, i.e., average insurance premium per capita does not fully capture the financing gap in the event of a premature death because most of the insurance products sold in India are savings-linked with a small component of protection.

Which of the statements given above is/are correct?

The correct answer is  Both 1 and 2.

Key Points

• A rupee Vostro account is an account that an Indian bank holds for a foreign bank in the domestic currency (rupee) to enable domestic banks to provide international banking services.
• It allows foreign banks to act as intermediaries in the Indian banking system, facilitating transactions in the domestic currency.
• Such accounts help in international trade and remittances by providing a means for foreign banks to settle payments in the local currency. Hence, statement 1 is correct.

• Insurance density, i.e., average insurance premium per capita, does not fully capture the financing gap in the event of a premature death.
• This is because most of the insurance products sold in India are savings-linked with a small component of protection.
• As a result, the protection component is often insufficient to cover the financial needs of the insured's family in case of an untimely demise. Hence, statement 2 is correct.

Additional Information

• Rupee Vostro Account:
  • A Vostro account is a local currency account maintained by a domestic bank for a foreign bank.
  • In this case, an Indian bank holds an account for a foreign bank in Indian Rupees.
  • It is used to facilitate transactions and settlements in the local currency, enhancing international banking operations and trade.
• Insurance Density:
  • Insurance density is calculated as the ratio of total insurance premiums to the population.
  • It provides a measure of how much on average each person spends on insurance.
  • However, in India, many insurance products are savings-oriented, with a smaller focus on pure protection, resulting in a potential gap in adequate coverage.