New Delhi: To address concerns of small depositors over failure of banks, Finance Minister Nirmala Sitharaman on Saturday proposed to raise the insurance cover on saving deposits five times to Rs 5 lakh.
The decision assumes significance in the wake of a scam in the Punjab and Maharashtra Cooperative (PMC) Bank affecting lakhs of customers who are facing difficulties in withdrawing their money due to restrictions imposed by the Reserve Bank of India.
"I wish to inform this august House that robust mechanism is in place to monitor the health of all Scheduled Commercial Banks and that depositors' money is safe.
"Further, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, which is now Rs 1 lakh to Rs 5 lakh per depositor," she said in Budget 2020-21.
At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and credit Guarantee Corporation if a bank fails. However, deposits maintained with different banks are not clubbed.
To strengthen the Cooperative Banks, she said, "amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI."
Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.
The deposit insurance scheme covers all banks operating in India including private sector, cooperative and even branches of foreign banks in India. There are some exemptions like deposits of foreign governments, deposits of central/state governments and inter-bank deposits.
Deposit insurance is static at Rs 1 lakh since 1993. As much as 90 per cent of the accounts had that much or less amount when this limit was raised to Rs 1 lakh.
The Raghuram Rajan Committee on Financial Sector Reforms 2009 had recommended strengthening the capacity of the Deposit Insurance and Credit Guarantee Corporation, a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.