Deposit insurance cover may increase beyond ₹5L: What it is
What's the story
The Indian government is considering raising the deposit insurance limit, which is currently at ₹5 lakh.
This was revealed by M Nagaraju, Secretary of the Department of Financial Services, at a press conference on Monday.
Nagaraju said that the proposal is "under active consideration," and will be announced officially once the government approves it.
Insurance mechanism
Deposit insurance claims: A safeguard for lenders
When a bank fails, depositors can file insurance claims against their money deposited in the lender.
Over the years, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has settled these claims.
The body collects premiums from banks for the insurance cover it provides. So far, majority of the claims have had to be done in case of cooperative lenders.
After the PMC Bank scam in 2020, DICGC increased the insured limit from ₹1 lakh to ₹5 lakh.
Scam fallout
New India Co-operative Bank scam triggers insurance discussion
Notably, the debate over raising deposit insurance limit has gained momentum after the New India Co-operative Bank scam.
On February 13, the RBI barred the Mumbai-based lender from issuing fresh loans and suspended deposit withdrawals for six months. It also superseded the board and appointed an administrator.
90% of the bank's 1.3 lakh depositors will have their entire sums covered under DICGC, reports said, following the incident.
Policy amendments
Changes in deposit insurance access and coverage
Until April 2021, depositors could only access this cover if their banks went into liquidation.
However, the Budget 2021 amended these rules to allow immediate access to deposit insurance cover of up to ₹5 lakh for depositors of banks placed under moratorium.
Last year, RBI Deputy Governor M Rajeshwar Rao suggested an upward revision in deposit insurance coverage due to factors like growth in bank deposits value, economic growth rate, inflation, and increase in income levels.