The Reserve Bank of India is examining the possibility of increasing the insurance cover for bank deposits from Rs 1 lakh currently.
According to a news report, RBI has asked its subsidiary, the Deposit Insurance and Credit Guarantee Corporation (DICGC), to create a risk-based system for collecting premiums from banks, to cover customers’ deposit insurance.
The issue of deposit cover assumes significance in the wake of the RBI action on PMC Bank, which has left depositors in the lurch. While depositors have been allowed to withdraw only Rs 40,000, they can expect to get only Rs 1 lakh from the deposit insurance cover.
The deposit insurance cover was last hiked to Rs 1 lakh on May 1, 1993, from Rs 30,000 in July 1980. Before that, the revisions were faster -- Rs 20,000 cover from January 1976 and Rs 10,000 effective April 1970. Prior to that a cover of Rs 5,000 was provided, effective January 1, 1968.
According to the 2018-19 annual report of the Deposit Insurance and Credit Guarantee Scheme, the insurance cover has been revised five times. Under Section 16 of the DICGC Act 1961, the insurance cover was originally limited to Rs 1,500 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.
In fact, a panel set up by the Reserve Bank of India had in 2011 recommended a five-times increase in the insurance cover to Rs 5 lakh.