The revised ceiling will be within the Rs 10 lakh mark.
The government is actively considering a hike in the deposit insurance limit for bank deposits from the present level of Rs 5 lakh within the next six months, a senior finance ministry official told Business Standard.
The deposit insurance limit refers to the amount of savings in bank deposits whose safety is assured if a lender goes bankrupt.
The insurance, provided through the Deposit Insurance and Credit Guarantee Corporation (DICGC), covers all forms of deposits, including those in savings and current accounts, parked by customers with commercial and cooperative banks.
While the government is yet to take a final call on the quantum of the new insurance limit for deposits to update the Rs 5 lakh cap set five years ago, the official signalled the revised ceiling will be within the Rs 10 lakh mark.
The cap had been raised from Rs 1 lakh, set in 1993, to Rs 5 lakh on February 4, 2020, in the aftermath of the collapse of the Punjab and Maharashtra Co-operative Bank (PMC Bank) that affected lakhs of depositors households.
The finance ministry is considering several factors in determining the new limit.
These include how many people will be covered, the amount of deposits to be insured, and how much the government will realistically be able to guarantee.
Decisions will also depend on existing income levels and the current volume of insured deposits, said the senior official.
Deposits in nearly 98 per cent of 2.89 billion accounts in insured banks were fully protected by the Rs 5 lakh insurance cap as of March 31, 2024, according to DICGC data.
But this protection only covers 43.1 per cent of the assessable deposits of Rs 2,18,23,481 crore as on the same date.
The DICGC is a wholly owned subsidiary of the Reserve Bank of India.
In February, M Nagaraju, secretary, financial services, said a proposal to increase deposit insurance is being considered and the finance ministry will notify it once the Cabinet takes a decision.
These remarks had come soon after the RBI prohibited New India Co-operative Bank from issuing new loans and suspended deposit withdrawals for six months.
The banking regulator later superseded the bank s board and appointed an administrator.
At the end of 2023-2024, the 63-year0old DICGC had a Deposit Insurance Fund of Rs 198,753 crore, and had settled deposit cover claims of Rs 1,432 crore to account holders in cooperative banks during the year.
Deposit insurance premium receipts during the year stood at Rs 23,879 crore.
Of the 1,997 insured banks registered with DICGC at the time, 140 were commercial banks and 1,857 cooperative banks.
Deposit insurance in India was introduced in 1962 with a coverage limit of Rs 1,500 per depositor.
This limit has been gradually increased over the years, taking it to Rs 20,000 in 1976 and Rs 30,000 in 1980.
In the 45 years since then, the limit has been reset twice.
Feature Presentation: Aslam Hunani/Rediff
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