Deposit insurance cover may increase from Rs 5 lakh: DFS secy Nagaraju

A proposal to increase deposit insurance is being considered and the finance ministry will notify it once the Cabinet takes a decision, said M Nagaraju, secretary, financial services, Ministry of Finance, on Monday.

 

This comes just after the crisis in New India Co-operative Bank last week. On February 13, the Reserve Bank of India (RBI) prohibited the bank from issuing new loans and suspended deposit withdrawal for six months, and then superseded the board and appointed an administrator. 

 

“When the government approves (the proposal), we will notify it,” Nagaraju said during a Press conference in Mumbai.

 

However, no date has been specified for this. Nor is it clear what the new cover will be.

 

Currently, deposits of up to ₹5 lakh are covered under the deposit-insurance scheme of Deposit Insurance and Credit Guarantee Corporation (DICGC).

 

DICGC is a wholly owned subsidiary of the RBI, which administers deposit insurance covering commercial banks, including regional rural banks (RRBs), local area banks (LABs), and cooperative banks.

 

The cover was increased from ₹1 lakh with effect from February 4, 2020, in the aftermath of the Punjab & Maharashtra Cooperative Bank crisis.

 

DICGC has started the process of claim settlement. Depositors have to submit their claims by March 30 and they will be paid by May 14. 

 

DICGC settled claims of ₹1,432 crore in 2023-24, and the amount concerned cooperative banks, the RBI data showed.

 

There were 1,997 insured banks registered with DICGC at the end of last financial year. Of those 140 were commercial banks and 1,857 cooperative banks.

 

The current limit of ₹5 lakh covers almost 98 per cent of deposit accounts. However, in terms of the value of deposits, only 43.1 per cent of assessable deposits are insured. For commercial banks, it is 41.9 per cent whereas in the case of cooperative banks it is 63.3 per cent.

 

Deposit insurance premium is borne entirely by the insured bank. No bank can withdraw from the scheme. All commercial banks, including branches of foreign banks functioning in India, LABs and RRBs are insured by DICGC.

 

Additionally, according to DICGC, if customers have deposits with more than one bank, the deposit insurance coverage limit is applied separately to deposits in each bank.