Government Likely To Raise Deposit Insurance Limit From Rs 5 Lakh – How Does DICGC Insurance Help Depositors In Cases Of Bank Fail?

Mumbai: The government is "actively considering" raising the deposit insurance limit beyond the current Rs 5 lakh, a top finance ministry official said on Monday.

Days after the New India Co-operative Bank scam came to light, Department of Financial Services Secretary M Nagaraju announced that such a proposal is in the works.

"The point about increasing insurance... That is under active consideration. As and when the government approves, we will notify it," he told reporters at a press conference in the presence of Finance Minister Nirmala Sitharaman.

How Does Deposit Insurance Help Depositors And Mitigate Fears In Cases Of Bank Fail

A deposit insurance claim gets triggered when a lender goes down, and over the years, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has paid out such claims. The body collects premiums from banks for the cover it offers, and a majority of the claims have had to be done in case of cooperative lenders.

DICGC insured limit Raised From Rs 1 Lakh To Rs 5 Lakh In 2020

It can be noted that following the PMC Bank scam, the DICGC insured limit was raised to Rs 5 lakh from Rs 1 lakh in 2020. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020. Every bank used to pay 10 paise as an insurance premium per Rs 100 of deposit. It was raised to 12 paise per Rs 100 in 2020. It cannot be more than 15 paise at any point in time per Rs 100 deposit. The increase was done after a gap of 27 years as it has been static since 1993.