Govt may raise deposit insurance beyond Rs 5 lakh amid bank scam concerns

After the New India Co-op Bank scam exposed a Rs ₹122 crore fraud, the govt is mulling over raising deposit insurance beyond Rs 5 lakh amid rising concerns over financial security

The government is “actively considering” raising the deposit insurance limit beyond the current Rs 5 lakh, reported PTI, citing a senior finance ministry official on Monday.

 

This announcement comes just days after the New India Co-operative Bank scam was exposed.

 

M Nagaraju, secretary of the Department of Financial Services, confirmed that discussions are underway in this regard.

 

“The point about increasing insurance... that is under active consideration. As and when the government approves, we will notify it,” Nagaraju told reporters at a press conference attended by Finance Minister Nirmala Sitharaman.

 

However, he refrained from commenting on the New India Co-operative Bank crisis, stating that the Reserve Bank of India (RBI) is handling the matter.

 

Deposit insurance and its impact

 

Deposit insurance covers bank customers when a lender collapses. The Deposit Insurance and Credit Guarantee Corporation (DICGC)—which collects premiums from banks— has historically paid out claims, especially for cooperative banks.

 

In 2020, after the PMC Bank scam, the deposit insurance limit was increased from Rs 1 lakh to Rs 5 lakh.

 

'Cooperative banks are well regulated'

 

Meanwhile, Economic Affairs Secretary Ajay Seth assured that cooperative banks operate under strict RBI regulations and that the sector remains strong.

 

“A crisis at one entity should not lead anybody to cast doubts on the overall sector,” he said, adding that it is the regulator's responsibility to act against fraudulent banks.

 

90% of depositors covered amid Rs 122 crore scam

 

According to reports, 90 per cent of New India Co-operative Bank’s 130,000 depositors will have their entire money covered under the DICGC insurance scheme.

 

The scam came to light after a physical inspection revealed that Rs 122 crore in cash recorded in the bank’s books was missing.

 

Investigations later found that the bank’s general manager for finance, Hitesh Mehta, had allegedly handed over a large portion of the missing funds to a local builder.

 

The case is currently under investigation.

 

(With PTI inputs)