The central government is considering increasing the insurance cover for bank deposits from the current Rs 5 lakh to a higher limit, possibly between Rs 8 lakh and Rs 12 lakh. The move aims to address depositor concerns, especially among senior citizens, and strengthen trust in the banking system. Sources indicate that an official announcement may come by the end of March 2025.
Higher Insurance Cover Under Review
Actuarial calculations are in progress to determine the feasibility of the enhanced coverage. The Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides insurance protection to depositors, will need to adjust the premium paid by banks to accommodate the proposed increase. Banks will be required to pay a higher insurance premium, which is under evaluation to ensure affordability.
Public demand for increasing the deposit insurance limit has been growing. Some representations suggest a hike to as much as Rs 20-25 lakh due to rising income levels and inflation. However, officials believe the government may settle on Rs 10 lakh, with a moderate increase in DICGC fees.
Senior Citizens Push for Higher Protection
Senior citizens have been at the forefront of this demand, as their deposits have surged significantly in recent years. The total bank deposits held by senior citizens rose from Rs 13.7 lakh crore in 2018 to Rs 34.2 lakh crore in 2023, marking a 150% increase. Given the financial security concerns of elderly depositors, various senior citizen associations have been urging the government to raise the deposit insurance cover.
Financial Services Secretary M Nagaraju confirmed on Monday that the government is actively considering the proposal. Currently, the Rs 5 lakh insurance cover applies to all insured banks, including cooperative banks. The coverage ensures that depositors receive compensation if a bank fails or is liquidated.
Recent Banking Crisis Highlights Need for Reform
The discussion around deposit insurance has gained momentum following the recent fraud at New India Co-operative Bank (NICB). The Reserve Bank of India (RBI) took action by superseding the bank’s board for 12 months due to financial irregularities. With a deposit base of Rs 2,436 crore and 30 branches, NICB’s depositors have been rushing to withdraw their money. As per RBI’s directive, NICB depositors will be eligible to receive up to Rs 5 lakh from DICGC.
Deposit Insurance Fund and Historical Changes
DICGC has been actively settling claims for failed banks. In 2023-24, the corporation processed claims worth Rs 1,432 crore, covering 27 cooperative banks under liquidation or regulatory restrictions. Meanwhile, it collected Rs 23,879 crore in premiums from insured banks.
The deposit insurance coverage limit has been increased six times since its introduction in 1962. The last major hike was in February 2020, when it was raised from Rs 1 lakh to Rs 5 lakh. Presently, 97.8% of all deposit accounts in India are fully insured under the Rs 5 lakh limit, while 43.1% of total bank deposits, amounting to Rs 94.1 lakh crore, are insured. DICGC’s accumulated insurance fund stands at Rs 1.99 lakh crore as of March 2024.
Final Decision Expected Soon
The government is expected to finalize the new deposit insurance limit within the ongoing financial year. The increase in coverage will provide greater financial security to depositors while ensuring that banks contribute adequately to the insurance fund through higher premiums. If implemented, this measure could boost confidence in the banking sector and offer better protection against potential bank failures.
