The government is considering increasing the limit of insurance on customer deposits in bank accounts. Currently, depositors get insurance protection on an amount of up to ₹ 5 lakh. This limit can be increased to ten lakh rupees. According to a report by Business Standard, this limit can be increased in the coming six months. A senior official of the Finance Ministry informed on the condition of anonymity that the government is working actively in this direction.

Deposit insurance is the security amount that the depositor gets in case of bankruptcy of the bank. Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of the Reserve Bank of India. It manages deposit insurance in the country’s commercial banks, regional rural banks, local banks and cooperative banks. Earlier in February, Financial Services Secretary M Nagaraju had said that the proposal to increase deposit insurance is being considered and the Finance Ministry will notify it after the Cabinet takes a decision.

The official said that the Finance Ministry is considering several important aspects before deciding the new limit. It is being seen how many account holders will benefit from increasing the insurance limit, how much of the total deposit amount will come under this purview and how much guarantee the government is in a position to give for this. Apart from this, the final decision will also depend on the current income level and the currently insured deposits.

In response to a recent question on this subject, RBI Governor Sanjay Malhotra said that there is no formal proposal in this regard yet. He said that the current deposit insurance limit is ₹ 5 lakh, which was increased from ₹ 1 lakh about five years ago. Today, about 97% of bank account holders are covered under this limit.

Insurance limit increased many times before

The deposit insurance scheme in India was introduced in 1962, when the limit was fixed at ₹1,500 per depositor. It was then increased from time to time. It was increased to ₹20,000 in 1976, ₹30,000 in 1980 and ₹1 lakh in 1993. Later, it was increased to ₹5 lakh in February 2020 due to the Punjab & Maharashtra Cooperative Bank crisis.

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At present, deposits up to Rs 5,00,000 are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Deposit Insurance Scheme. A few days after the alleged scam of Maharashtra’s New India Co-operative Bank came to light, Nagaraju said that work is in progress on such a proposal.

In a press conference attended by Finance Minister Nirmala Sitharaman, he said, “The issue is to increase the insurance limit… It is being actively considered. As soon as the government approves, we will issue a notification.” However, Nagaraju refused to comment on the crisis of New India Co-operative Bank. He said that the Reserve Bank of India (RBI) is looking into the matter.

Deposit insurance claims kick in when a lender goes under. Over the years, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been paying such claims. The body collects a premium from banks for the cover it provides. Again, most claims have been made against co-operative lenders.

After the PMC Bank scam, the DICGC insurance limit was increased from Rs 1 lakh to Rs 5 lakh in 2020. According to PTI, Economic Affairs Secretary Ajay Seth said that the cooperative banking sector is running well under the supervision of the RBI. He termed the overall condition of the sector as strong.

He said that no one should doubt the entire sector because of the crisis in one bank. It is the regulator’s job to take action against the guilty units. According to reports, 90 percent of the 1.3 lakh depositors of New India Co-operative Bank will get the entire amount under DICGC.

The scam in the bank came to light after a physical inspection revealed that Rs 122 crore cash shown in the ledger was missing. The investigation revealed that the bank’s General Manager-Finance Hitesh Mehta had allegedly given a major portion of the embezzled amount to a local builder.

RBI data shows that in the financial year 2023-24, DICGC settled claims worth Rs 1,432 crore. The entire amount was for cooperative banks. The number of banks registered with DICGC was 1,997 as of March 31, 2024. These include 140 commercial banks and 1,857 cooperative banks.

The current limit of Rs 5,00,000 covers about 98 percent of deposit accounts. In the case of commercial banks, only 41.9 percent of deposits are covered under insurance. Whereas in the case of cooperative banks, this figure is up to 63.3 percent.

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