Insurance cover on bank deposits has been increased to five lakh rupees from one lakh rupees. The decision came into effect from yesterday.
The Reserve Bank of India (RBI) said in a statement that the cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI. This, the RBI said, has been done with a view to providing a greater measure of protection to depositors.
Finance Minister Nirmala Sitharaman on Saturday had made the announcement regarding increasing insurance cover to five lakh rupees in her Budget Speech.
Earlier, Finance Secretary Rajiv Kumar said the Department of Financial Services has given approval for raising deposit insurance cover.
The move will help boost confidence of people in the banking system.
As the insurance cover stands increased, the banks will pay a premium of 12 paise against 10 paise per 100 rupees deposited.
The deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. There are some exemptions such as deposits of foreign governments, deposits of Central and State Governments, and inter-bank deposits. Deposit insurance was static at one lakh rupees since 1993.
The demand for raising the deposit insurance limit gained momentum after a run on a large-sized multi-state cooperative bank, the Punjab and Maharashtra Cooperative Bank (PMCB) after it came under an RBI Administrator for financial irregularities pertaining to loans to real estate firm HDIL.