Hike in deposit insurance won't hit bank balance sheets: RBI

Reserve Bank deputy governor B P Kanungo on Thursday said the five-fold hike in deposit insurance to Rs 5 lakh will not have much impact on bank balance sheets.

Following the failure of a number of cooperative banks, with the city-based PMC Bank being the latest and the largest last year, the budget had permitted the Deposit Insurance and Credit Guarantee Corporation (DICGC) to raise deposit insurance coverage to Rs 5 lakh from Rs 1 lakh.

"The revision in deposit insurance will not impact banks' balance sheets much," Kanungo told reporters during the post policy conference.

The crisis at the Punjab & Maharashtra Cooperative (PMC) Bank has brought to the fore the need to increase deposit insurance coverage.

The DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.

At present, the DICGC provides Rs 1 lakh insurance to a depositor regardless of the deposit amount, in case the lender fails or gets liquidated.

The corporation insured each bank depositor up to a maximum of Rs 1 lakh for both principal and interest amount held by them as on the date of liquidation/cancellation of a bank's licence or the date on which the scheme of amalgamation/merger comes into force.