Budget 2020: Deposit Insurance Hike Do Not Benefit All Depositors

To instill confidence in bank depositors who were witness to Punjab and Maharashtra Commercial Bank's debacle that led to restriction in deposit withdrawal as well as suspension of operation of the bank, there was a call to increase cover for bank deposits from the current Rs. 1 lakh.

Budget 2020: Deposit Insurance Hike Do Not Benefit All Depositors

After the FM in her budget speech 2020 has give in to the demand and increased the deposit insurance cover to Rs. 5 lakh, it is hereby clarified that not all depositors stand to gain from the move.

Who then stand to gain from an increase in deposit insurance cover?

Under the Deposit Insurance and Credit Guarantee Corporation (DICGC), the deposits in banks are now protected up to Rs. 5 lakh in respect of both fixed deposits and savings accounts. But while its aimed at protecting a depositor's interest in case the bank fails, experts remark it to be the most impractical scheme that does not provide the dues to its customers in the due time i.e. they have to wait for years to get their own money.

Further the scheme has in its history paid out only to depositors or customers of cooperative banks, as the apex banking authority RBI even in case the bank fails do not directly prefer the course of liquidation and instead works on to revive the operations and financials of the bank and then take it into the process of liquidation and thereafter repay depositors under the DICGC scheme.

Nonetheless, even though the scheme typically comes to the rescue of cooperative banks in particular and not the large commercial banks. Banks across the country irrespective of their type have to pay for their individual cover the premium cost.

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