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The government is considering increasing the insurance cover limit on bank deposits from the current Rs 5 lakh per depositor, Financial Services Secretary M Nagaraju said on Monday.
The announcement comes in the wake of the recent clampdown on Mumbai-based New India Cooperative Bank by the Reserve Bank of India (RBI). The regulator imposed several restrictions on the bank in the wake of certain supervisory concerns, and also superseded its Board of Directors for 12 months, citing “poor governance standards”.
“…On the point about increasing (deposit) insurance, that is under active consideration. As and when the government approves, we will notify it,” Nagaraju said when questioned about the government’s action plan in the New India Cooperative Bank case and if there was a possibility of revising the Rs 5 lakh per depositor insurance cover. Noting that the RBI was seized of the New India Cooperative Bank matter, the secretary refused to comment on it. The cooperative bank has a network of 30 branches and a deposit base of Rs 2,436 crore as of March 2024. The bank had posted losses of Rs 22.78 crore in 2023-24 and Rs 30.74 crore in 2022-23. Post the RBI’s action, the bank’s depositors have been queuing up before its branches to withdraw their money.
Currently, each bank depositor is insured up to a maximum of Rs 5 lakh for both principal and interest amount held by him as on the date of liquidation or cancellation of the bank’s licence or the date on which the scheme of amalgamation or merger or reconstruction comes into force. The insurance cover to depositors is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI.
According to the RBI, the eligible depositors of the New India Cooperative Bank would be entitled to receive deposit insurance claim amount of their deposits up to a monetary ceiling of Rs 5 lakh from the DICGC. It will be based on submission of willingness by the depositors concerned and after due verification, the RBI said.
The RBI is also in favour of a hike in deposit insurance coverage limit. On August 19, 2024, RBI Deputy Governor M Rajeshwar Rao had said that a periodical upward revision of the deposit insurance coverage limit, currently at Rs 5 lakh, may be warranted considering multiple factors like growth in the value of deposits, inflation and increase in income level.
DICGC insures all commercial banks including branches of foreign banks functioning in India, local area banks, regional rural banks and urban cooperative banks. The insurance cover for bank depositors in insured banks was last raised from Rs 1 lakh to Rs 5 lakh from February 4, 2020. The hike in this limit followed the RBI’s action on Mumbai-headquartered Punjab and Maharashtra Cooperative Bank Ltd (PMC Bank), with deposits of over Rs 11,000 crore.
The deposit insurance coverage limit has been enhanced six times since 1962, from Rs 1,500 per depositor held in the same right and same capacity at all the branches of insured bank to Rs 5 lakh since February 4, 2020. At present, 97.8 percent of the total number of deposit accounts are fully protected. Of the remaining 2.2 percent of accounts, deposits are insured up to the limit of Rs 5 lakh. In terms of value, 43.1 percent of the deposits were insured as of March 2024.
According to DICGC, the deposit insurance fund (DIF) as at and-March 2024 was Rs 198,753 crore, recording an year-on-year growth of 17.2 per cent. The fund is invested only in Government of India securities. The reserve ratio (i.e., ratio of DIF to insured deposits) increased to 2.11 per cent from 2.02 per cent a year ago.
