The cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.
This, the RBI said, has been done with a view to providing a greater measure of protection to depositors.
The move will help boost confidence of people in the banking system which has been shaken after a scam last year in Punjab and Maharashtra Cooperative Bank (PMC Bank) which affected lakhs of customers.
As the insurance cover stands increased, the banks will pay a premium of 12 paise against 10 paise per Rs 100 deposited.
The deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. There are some exemptions such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.
Deposit insurance was static at Rs 1 lakh since 1993.
The Raghuram Rajan Committee on Financial Sector Reforms 2009 had recommended strengthening the capacity of DICGC, a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.