New Delhi: The government is expected to increase insurance cover on bank deposits from the current Rs 1 lakh to Rs 5 lakh, and unveil a new insurance cover scheme for institutional customers at Rs 25 lakh. It is worth noting that bank depositors currently get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and Credit Guarantee Corporation.

Last week, Finance Minister Nirmala Sitharman mentioned that the government will bring legislation during the Winter Session of Parliament on raising insurance cover on bank deposits. It is worth noting that the deposit insurance cover of Rs 1 lakh has not been changed since 1993.

A financial daily cited an unnamed regulatory official as saying that he was hopeful that the finance ministry would raise the deposit insurance limit as it was “long overdue.” He went on to add that he has no knowledge of the new plan for wholesale depositors.

“It is unlikely that the premium paid per Rs 100 by banks for deposit insurance to the Deposit Insurance and Credit Guarantee Corporation (DICGC) at 10 paise will be raised so as not to increase their burden,” the official told the publication.

The matter, however, may come up for discussion at the Reserve Bank of India’s (RBI’s) central board meeting on December 13 in Odisha’s capital Bhubaneswar. Plus, the apex bank’s board would also deliberate on two crucial proposals. First, lenders should be allowed to attain additional deposit insurance, over and above the proposed increased limits, be it individual customers or wholesale depositors by payment of more premium. Secondly, the DICGC create a separate fund to safeguard depositors’ interests in the wake of the scam in the Punjab and Maharashtra Cooperative (PMC) Bank, which has adversely impacted lakhs of customers.

It is worth noting that the Raghuram Rajan Committee on Financial Sector Reforms 2009 had also suggested strengthening the capacity of the DICGC — a wholly-owned subsidiary of the RBI.

At present, there is no clarity whether the finance ministry and the banking regulator will look into the concept of risk-based premium (RBP) for deposit insurance. The proposal, if implemented, could trigger a move wherein customers may opt to switch to safer banks if the RPB paid put out into the public domain.

Separately, Sahakar Bharati — an NGO in co-operative field — wrote a letter to FM Sitharaman last week, urging to enhance the deposit insurance limit for individual account holders to Rs 5 lakh.

Source:- timesnownews

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