Centre to inflate deposit insurance limit offered in case of bank failure

The centre is planning to inflate the deposit guarantee limit applicable in case of bank failure from existing Rs 1 lakh. The parliament is likely to take a call on this and form legislation in this regard in the winter session, said Union Finance Minister Nirmala Sitharaman.

The government is also planning to initiate legislation to regulate multi-state co-operative banks, the finance minister said.

The minister’s comments come in the wake of the fiasco at Mumbai-based urban cooperative bank, PMC Bank. Customers of the crisis-hit bank can now withdraw up to Rs 50,000 according to the new enforced limit.

The present bank deposit insurance scheme in case of an unexpected bank failure deposits up to Rs 1 lakh is insured and paid back to the depositor.

This scheme includes all types of bank deposits such as savings, fixed and recurring with an insured bank. The bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India. The agency does not directly charge any premium from bank depositors directly but banks pay a nominal premium for the cover.

This deposit guarantee can be transferred only if the bank gets closed. It cannot be released if the bank is a going concern.

Highlights of the current deposit insurance scheme on bank deposits:

  • Rs 1 lakh limit covers both principal and interest amount.
  • All deposits maintained by the depositor across all branches of the failed bank are included. Or in other words, if a customer keeps deposits in different branches of a bank, they are paid a maximum of up to Rs. 1 lakh only on the aggregate amount.
  • Deposits maintained with different banks are not clubbed.
  • The deposit insurance scheme includes all lenders operating in India such as private sector, co-operative and even branches of foreign banks in India. There are some exclusions such as deposits of foreign governments, deposits of central/state governments and inter-bank deposits.

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