Amid growing deposit volumes driven by inflation and economic growth, the government considers raising the current Rs 5 lakh deposit insurance limit managed by the DICGC. Originally set after the PMC Bank crisis, the proposed increase would further protect depositors, boost confidence, and accommodate a surge in banking activity significantly.
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The government is considering increasing the insurance cover for bank deposits from the current limit of Rs 5 lakh.
It is a financial safety net that protects depositors’ money in case a bank fails.
It is managed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI).
The DICGC insures deposits up to a specified limit (currently Rs 5 lakh per depositor, per bank) across all branches of an insured bank. This includes savings, fixed, current, and recurring deposits, but excludes government/inter-bank deposits and primary cooperative society deposits.
The DICGC insures deposits up to ₹5 lakh, covering both principal and interest. For example:
If a bank fails, the liquidator submits a claim list to the DICGC. Depositors must provide proof of identity, a "willingness declaration" to receive up to Rs 5 lakh, and bank account details for payout.
The DICGC compensates eligible depositors within 90 days of restrictions or two months after liquidation.
The Rs 5 lakh cap was set in 2020 after the Punjab & Maharashtra Co-operative Bank (PMC Bank) crisis.
As of March 2024, 97.8% of accounts were fully protected, exceeding the international benchmark of 80%.
RBI Deputy Governor noted that India’s formalizing economy will see a surge in bank deposits. Factors like inflation, rising incomes, and economic growth justify periodic increases in the limit .
Higher coverage reduces depositor risk during bank failures (e.g., New India Co-operative Bank’s recent restrictions) and strengthens confidence in the banking system .
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Deposit insurance began in 1962 at Rs 1,500 per depositor and has been raised six times, most recently to Rs 5 lakh in 2020 . |
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PRACTICE QUESTION Q. Critically analyze the functions of the Reserve Bank of India (RBI) as the central monetary authority. How does it regulate the banking sector to ensure financial stability? 250 words |
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