In a move that could provide greater financial security to bank depositors, the Indian government is reportedly considering increasing deposit insurance coverage under the Deposit Insurance and Credit Guarantee Corporation (DICGC). According to officials from the Finance Ministry, the current limit of ₹5 lakh per depositor per bank may be revised upward.
Why the Increase?
The existing insurance coverage of ₹5 lakh was last revised in 2020, up from the previous limit of ₹1 lakh, after the Punjab and Maharashtra Cooperative (PMC) Bank crisis exposed vulnerabilities in depositor protection. With rising inflation and growing concerns about financial stability, policymakers are evaluating the need to enhance coverage further.
Impact on Depositors
If a bank fails or is liquidated, depositors are entitled to insurance coverage of up to ₹5 lakh per account, which is paid out within 90 days under DICGC norms. An increase in this limit would enhance depositor confidence and protect a greater portion of their savings, particularly for small and medium-sized account holders.
Also Read: Calculate your savings under New Tax Regime?
Global Comparisons
In comparison, the U.S. Federal Deposit Insurance Corporation (FDIC) offers coverage of up to $250,000 (approximately ₹2 crore), while in the UK, the Financial Services Compensation Scheme (FSCS) covers deposits up to £85,000 (around ₹90 lakh). A further increase in India’s insurance cap would bring its depositor protection framework closer to global standards.
Potential Challenges
Though this suggested measure would considerably enhance depositor safety, it would also increase banks’ premiums, as the DICGC collects a fixed percentage of insured deposits as premiums from member banks. Further, big banks could have increased financial costs, which could influence lending and operating expenses.
Government’s Stand
The Finance Ministry has not yet made an official announcement but is in consultation with the Reserve Bank of India (RBI) and other stakeholders.
With bank collapses in the past triggering concerns regarding the safety of depositors, a higher insurance cover could be a key move towards making India’s financial system more robust. Watch this space for more developments as the debate continues within the government.
Also Read: Gold and Silver Prices Soar
