Amidst calls for increasing the deposit insurance cover after the crisis at Punjab and Maharasthra Bank, official data reveals that the cap was hiked more than two decades ago and this is in fact, the most extended break in the revision of the cover.

The deposit insurance cover was last hiked with effect from May 1, 1993 to ₹1 lakh from ₹ 30,000 in July 1980. Before that, the revisions were faster --- ₹20,000 cover from January 1976 and ₹10,000 effective, April 1970. Before that, a cover of ₹5,000 was provided, effective January 1, 1968.

According to the annual report 2018-19 of the Deposit Insurance and Credit Guarantee Corporation, the insurance cover has been revised five times. Under Section 16 of DICGC Act 1961, the insurance cover was originally limited to ₹ 1,500 only per depositor for deposits held by him in “the same capacity and in the same right” at all the branches of a bank taken together.

Read also: India’s deposit insurance cover remains the lowest globally

In fact, a panel set up by the Reserve Bank of India way back in 2011 had recommended a five-time increase into ₹5 lakh.

As part of its report on customer services in banks, the Damodaran Committee had noted that with the rise in general income levels resulting in an increase in the size of individual bank deposits, this ceiling of ₹1 lakh is considered insufficient. It had also suggested that for sick banks where the accounts were frozen, there should be a way to enable the customer to avail a part of their insured deposit till the final fate of a sick bank is decided.

A move to this end was planned in the Financial Resolution and Deposit Insurance Bill, which was later junked.

“It is not like the government has not been aware of the issue. It has been working on increasing the deposit insurance coverage for some time,” noted a former government official.

Also read: Do public sector banks really need deposit insurance?

Finance Minister Nirmala Sitharaman has indicated that the government may now look at reviewing the deposit insurance cover.

Responding to a question at the fourth bi-monthly monetary policy review press conference, RBI Deputy Governor NS Vishwanathan had said, “There has been this demand in the past as well, but the extent of deposit insurance cover, there are many elements that get into it in terms of how much percentage of deposit should get covered, how many percent of depositors should be covered. So, there are many factors that will determine that so there have been studies based on that and of course, still no final decision has been taken.”

How the scheme has functioned

The DICGC last settled a claim in March this year about Uttar Pradesh based Pioneer Urban Co-operative Bank. The RBI had cancelled the license of the bank in October 2016.

More read: 4 ways to beat falling cover for deposit

DICGC settled main claims of 28,382 depositors for ₹6.85 crore and released ₹3.45 crore.

Last fiscal, it settled aggregate claims worth ₹37 crore for 15 cooperative banks, six main claims and 21 supplementary claims).

According to its annual report, it took an average 1,425 days in 2018-19 between de-registration of a bank and claim settlement and about 11 days between receipt of a claim and claim settlement. This was 12 days in 2017-18.

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