RBI to increase deposit insurance coverage. Is this new initiative will provide relief?

In 1962, Deposit insurance was introduced total with 287 banks; as on March 31, 2024, 1, 997 banks are insured now successfully. Since then it has been increased six times from Rs 1, 500 per depositor to Rs 5 lakh today.

What is the coverage for deposit insurance?

• The institution involved for this scheme will be taken care by Deposit Insurance and Credit Guarantee Corporation (DICGC), it is also a RBI subsidiary.
• In case of failure of a bank , it insures deposits made in Indian banks protect the depositors .
• DICGC has so far extended insurance cover up to 5 lakh per depositor and per bank.
• This includes the total principal and interest on all savings, fixed, current and recurring accounts.
• DICGC protects deposits in commercial banks (public, private and foreign commercial banks), cooperative banks (central, state and urban co-operatives), and regional rural banks.

How does it work?

• Banks must register with the DICGC before offering deposit insurance.
• Premium Paid: Banks pay a fixed premium to DICGC which is not passed on to customers.
• DICGC pays back depositors up to 5 lakh in case of failure of a bank after checking liquidator’s claims.

Also Read: At what point should you withdraw your funds from all small- and mid-cap funds?

There is a proposal to increase the insurance limit following the recent banking crises like the one faced by New India Co-operative Bank. If increased, the insurance limit would protect the depositors more so the large depositors in banks. This would give more security and trust in the banking system.