On Friday, Finance Minister Nirmala Sitharaman said that the government is planning to raise the deposit guarantee limit from existing Rs 1 lakh. The deposit insurance cover protects individual bank accounts when a lender (banks or other financial institutions) goes bankrupt or its licence is revoked by the Reserve Bank of India.
Her comments come in the wake of the crisis at Mumbai-based urban cooperative bank, PMC (Punjab Maharastra Co-operative) Bank, which has shaken the faith of customers on the banking system in India. The limit on withdrawal for customers of the crisis-ridden bank was recently increased to Rs 50,000.
The upward revision in the insurance cover for deposits could come through the re-introduction of a revamped Financial Resolution and Deposit Insurance (FRDI) Bill in the winter session of the Parliament that begins next week.
The Finance Minister also said that the government plans to bring legislation to regulate multi-state co-operative banks.
The deposit insurance scheme insures all types of bank deposits including savings, fixed and recurring with an insured bank with the help of Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI. There is no direct premium charged to the bank depositors but banks pay a nominal premium for the cover.
The last revision from Rs 30,000 cover to Rs 1 lakh was made in 1993, which is 26 years ago. The demand for an increase has been long pending.
Earlier in 2011, an RBI panel had recommended a five-time hike in the cover to Rs 5 lakh per depositor to encourage bank deposits, but it was not implemented.
The FRDI Bill was also re-introduced in the Lok Sabha in 2017 but it was withdrawn a year later on an uproar over a controversial 'bail-in' clause in the bill.