Finance Mininstry may introduce revised bank deposit insurance cover by next year

The Finance Ministry is currently reviewing the possibility of increasing the insurance cover on bank deposits beyond the existing ceiling of ₹5 lakh, which was introduced less than five years ago. This move is still under consideration, and sources indicate that a revised deposit insurance scheme may only be rolled out by the end of the current calendar year.

Deposit insurance provides protection to depositors by safeguarding a fixed amount of their bank savings in case a bank collapses. The current limit of Rs 5 lakh ensures that this amount is guaranteed even if the bank goes bankrupt.

Sources within the ministry stated that while the quantum of the revised insurance cap is still being analysed, the government remains committed to evaluating the proposal thoroughly before making an official announcement.

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is responsible for managing deposit insurance. It collects premiums from banks—currently set at 0.12% per Rs 100 of deposits—to provide this protection.

The current insurance cap of Rs 5 lakh came into effect on April 1, 2020. It was a significant increase from the previous limit of Rs 1 lakh, which had remained unchanged for 27 years. This revision followed the Punjab & Maharashtra Co-operative Bank crisis.

In February this year, Financial Services Secretary M. Nagaraju confirmed that a proposal to raise the insurance cap was under discussion and would be notified once the Union Cabinet takes a final decision. His comments came shortly after the Reserve Bank of India restricted New India Co-operative Bank from issuing fresh loans and suspended deposit withdrawals for six months.

As per official data from the website, the DICGC settled claims worth Rs 1,432 crore in FY24, all related to co-operative banks, and received a premium of Rs 23,879 crore in the same period. As of today, the DICGC has 1,996 insured banks registered with it.