Bank Deposit: After the PMC Bank scam, the bank deposit insurance cover was increased from Rs 1 lakh to Rs 5 lakh in the budget for the year 2020-21..
Bank Deposit Insurance Update: Depositors who keep their hard earned money in banks may get good news in the coming days. In case of bankruptcy or sinking of banks, depositors can get their entire amount back under the insurance coverage available on their deposits, the limit of which is currently Rs 5 lakh. M. Rajeshwar Rao, Deputy Governor of the banking sector regulator Reserve Bank of India, has said that the bank deposit insurance limit should be increased after a period and he has also advocated giving insurance cover to customers like small depositors, senior citizens on their entire bank deposits.
Insurance on deposits should be reviewed!
Addressing a program of Deposit Insurance and Credit Guarantee Corporation (DICGC) on Deposit Insurance: Keeping Pace with the Changing Times, M Rajeshwar Rao said that currently, by implementing the limited coverage option in India, depositors in every bank are given uniform deposit insurance coverage of Rs 5 lakh. He said, keeping in mind multiple factors like growth in the value of bank deposits, economic growth rate, inflation and increase in income level, this limit should be increased after a period.
Small depositors, senior citizens should get full insurance cover
Deputy Governor M Rajeshwar Rao said, providing insurance cover on the entire bank deposit can prove to be the most ideal for the depositors and it will also help in preventing chasing banks. However, considering the moral hazards and financial impracticality, this does not seem possible. He said, with complete insurance coverage for customers like small depositors, senior citizens, we can seriously consider possibilities like alternative targeted insurance.
Bank deposits will increase
The RBI Deputy Governor said, today we count India among the fastest growing economies among the big economies and this is going to continue in the coming days. With the development of the economy and its becoming more organized, there may be a sharp jump in primary and secondary deposits in banks, due to which a huge difference will arise between the insurance reserve requirements and the reserves available. In such a situation, the deposit insurer will have to look at measures to meet it keeping in mind the additional funding needs.
The limit was Rs 5 lakh in 2020-21
While presenting the budget for the financial year 2020-21, Finance Minister Nirmala Sitharaman increased the insurance cover on bank deposits from Rs 1 lakh to Rs 5 lakh. After the PMC Bank i.e. Punjab and Maharashtra Co-operative Bank scam, the government took this decision so that the depositors who keep their life’s hard-earned money in banks can be given relief. However, there is a catch in this. Even if the amount deposited in fixed deposit, recurring deposit, savings bank account together may be more than Rs 5 lakh.
DICGC is responsible for insurance
Reserve Bank of India’s subsidiary Deposit Insurance and Credit Guarantee Corporation provides insurance cover on bank deposits. DICGC provides insurance on all types of deposits including savings, fixed, current, recurring. Even if there is a deposit of more than Rs 5 lakh in different branches of the same bank, insurance cover is available only up to Rs 5 lakh. But if there are deposits in different banks, then the deposit insurance coverage limit will be valid separately for each bank account.
