New Delhi: In a big relief to the common man who trusted banks to keep their lifetime savings, Finance Minister Nirmala Sitharaman increased the deposit insurance cover by 4 times.
She raised the insurance cover available to bank depositors from Rs 1 lakh to Rs 5 lakh in one stroke.
Under the existing mechanism, bank deposits to the tune of Rs 1 lakh were covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
However, with the rising income, this insurance cover of Rs 1 lakh was considered inadequate.
In the run-up to the budget, ordinary bank depositors have sought to double the insurance limit from Rs 1 lakh to Rs 2 lakh in case of failure of a bank.
Failure of banks like Punjab and Maharashtra Co-operative Bank last year has caused concerns among the ordinary depositors about the safety of their lifetime savings maintained with scheduled commercial banks.
In September last year, the banking sector regulator, the Reserve Bank of India imposed restrictions on the operations of Punjab and Maharashtra Cooperative Bank.
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It also restricted depositors from withdrawing more than Rs 10,000 in a day, but later the limit was increased.
However, it caused extreme hardships to the bank’s depositors as hundreds of people lost their lifetime savings. These restrictions also resulted in the death of several depositors of the bank.
What is insurance deposit cover?
In 1961, the government has passed Deposit Insurance Corporation Bill to provide insurance cover with the bank depositors.
Earlier it was applicable to the functioning of commercial banks only. The RBI had also introduced Credit Guarantee Scheme in 1960, later these two were merged in 1978 to set up the Deposit Insurance and Credit Guarantee Corporation under the RBI to protect the interest of savings of bank depositors.
DICGC covers maintained with all commercial banks including foreign banks and all state, central and primary cooperative banks.
DICGC covered both principal and interest amount of a bank depositor in different banks separately to the tune of Rs 1 lakh in each bank. Now this limit has been raised to Rs 5 lakh in this year’s union budget.
(Article by senior journalist Krishnanand Tripathi)
