TOKYO, Dec 25 (Reuters) - A government panel on Friday approved raising the deposit limit at Japan Post Bank Co , a move fiercely opposed by small lenders, who are concerned about a hit to their profits from a potential outflow of deposits to the $1.5 trillion giant.
The decision came after Japan Post Holdings and its bank and insurance units made successful market debuts in November, marking Japan's biggest privatisation since 1987.
As a state-owned institution, Japan Post Bank and Japan Post Insurance Co have been under heavy regulation to protect private-sector competitors. Local banks fear that raising the deposit cap will stoke an outflow of deposits to Japan Post, hurting their business in the process.
The post bank's deposit limit of 10 million yen ($83,208) per account has been in place for 24 years.
The panel approved raising the bank's deposit limit to 13 million yen. It also gave the green light to increasing the maximum value of life-insurance policies sold by Japan Post Insurance to 20 million yen, from the current 13 million yen.
The ruling Liberal Democratic Party (LDP) lawmakers have been calling for raising the limits, a move demanded by a group of politically active post office masters.
Reuters reported in November the government was planning to raise the limits.
Japan Post Bank is the country's biggest bank by deposits, which stood at 177 trillion yen ($1.47 trillion). Its strength lies in its ubiquitous presence through over 20,000 post offices nationwide.
Small lenders say the post bank enjoys an unfair advantage as long as it remains effectively majority-owned by the government, as depositors assume there is implicit public guarantee.
The deposit and insurance limits will be raised sometime next year after the government makes necessary regulatory changes. ($1 = 120.1800 yen) (Reporting by Taiga Uranaka and Takahiko Wada; Editing by Shri Navaratnam)