New Delhi: Finance minister Nirmala Sitharaman announced during the Union Budget 2020 that the deposit insurance cover has been raised to Rs 5 lakh per depositor from Rs 1 lakh currently.
The current limit of Rs 1 lakh has notably been in force for the last 26 years, which is the longest period that such a limit has not been revised.
The announcement is significant considering the recent unfolding of fraud at the Punjab and Maharashtra Co-operative Bank (PMC Bank) in September last year, which restricted its depositors from withdrawing money from their own accounts.
Sitharaman also said that a robust mechanism has been put in place to monitor the health of all scheduled commercial banks and assured that all depositors’ money is safe in the country.
For those unaware, the current bank deposit insurance scheme promises to pay back depositors a maximum amount of Rs 1 lakh in an unlikely case of a bank failure. The insurance covers both principal and interest amount. The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), was set up for the aforementioned purpose of insurance of deposits and guaranteeing of credit facilities.
Notably, this insurance deposit amount is released only if the bank is shut down and not when it is temporarily restricted from conducting day-to-day operations.
The deposit insurance scheme covers all banks operating in India — private sector lenders, co-operative banks and even branches of foreign banks in India.