New Delhi: Finance Minister Nirmala Sitharaman on Friday said cooperative banks would be under the RBI's prudential norms to prevent any PMC Bank-like situations, there will be a rise from Rs 1 lakh in deposit insurance cover for account holders in the new FRDI Bill and the Finance Ministry will shortly move the proposal before the Cabinet.
"I will be going to Cabinet to increase the insurance limit from current Rs 1 lakh on deposit in banks and if the Cabinet approves it, we will move it in the upcoming winter session of Parliament", she said at a media interaction.
Sitharaman, however, did not say what would be the new deposit insurance limit.
The cover was raised from Rs 30,000 to Rs 1 lakh in 1993, and now after the collapse of Punjab & Maharashtra Co-operative Bank, there is a demand that the limit should be increased. The cooperative banks body has proposed Rs 5 lakh cover for deposits.
The need to raise the limit was felt after the scam in the PMC Bank came to light where harried depositors wanted safety of their hard-earned money. The PMC Bank crisis saw a substantial portion of depositors' money getting blocked with the bank. Many fear the worse is yet to come if the bank goes in for liquidation. That raised the question of how safe is the deposit in such a situation.
Deposit insurance is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation. The Deposit Insurance and Credit Guarantee Corporation covers depositors of all commercial banks and foreign banks operating in India, state, central and urban co-operative banks, local area banks and regional rural banks provided the bank with which the deposit is made has bought the cover from the corporation.