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Government May Raise the ₹5 Lakh Deposit Insurance Limit

If a bank goes bankrupt or its license is revoked, customers currently receive a maximum of ₹5 lakh as deposit insurance. However, the government is now considering an increase in this limit.

According to a senior Finance Ministry official, the government is actively working on a proposal to enhance deposit insurance coverage, ensuring greater financial security for account holders.

Proposal in Progress

This move comes just days after the New India Co-operative Bank scam came to light. In a recent statement, Department of Financial Services Secretary M Nagaraju confirmed that the proposal is being worked on and will be officially announced once approved. However, he refrained from commenting on the banking crisis at New India Co-operative Bank, stating that RBI is handling the matter separately.

Deposit Insurance Limit Was Last Increased in 2020

Deposit insurance is activated when a bank fails, and Deposit Insurance and Credit Guarantee Corporation (DICGC) steps in to compensate customers. DICGC collects premiums from banks to fund this insurance.

Historically, deposit insurance was capped at ₹1 lakh, but after the PMC Bank scam, the government raised the limit to ₹5 lakh in 2020.

Economic Affairs Secretary Ajay Seth assured that the cooperative banking sector remains well-regulated under RBI supervision, despite occasional crises.

New India Co-operative Bank Scam: Key Details

• The Economic Affairs Secretary downplayed concerns about the overall banking sector, emphasizing that isolated incidents should not create panic.
• In the New India Co-operative Bank case, 90% of the 1.3 lakh depositors will get their full deposits back under DICGC insurance coverage.
• A physical audit uncovered that ₹122 crore in cash was missing from the bank’s books.
• Investigation revealed that the Finance General Manager, Hitesh Mehta, had allegedly diverted a large portion of the funds to a local builder.

With the government considering enhanced deposit insurance, bank customers could soon receive more than ₹5 lakh in case of a bank failure, providing them with greater financial security.