Indian Government Considers Increasing Bank Deposit Insurance Cover for Better Financial Security
The Indian government is evaluating a proposal to increase the bank deposit insurance limit beyond the current Rs 5 lakh. The move comes amid growing concerns over deposit security, particularly after financial issues faced by the New India Co-operative Bank (NICB). If approved, the revision could enhance depositor confidence and provide stronger protection for savings in commercial and cooperative banks.
Background of Current Insurance Scheme
The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance cover for amounts under Rs 5 lakh in current banking practices. The insurance scheme protects banking institutions of a commercial nature and cooperative and regional rural divisions. The April 1st,2020 became effective to implement the elevated insurance limit exceeding the former Rs 1 lakh restriction. A new ceiling on insurance was implemented by policymakers after regulating the Punjab & Maharashtra Cooperative Bank (PMC Bank) experienced financial difficulties over the long period of 27 years.
As a Reserve Bank of India (RBI) subsidiary organization the DICGC insures financial claims related to banks operating in India. For the fiscal year ending March 31st, 2023-2024 the DICGC paid claims that reached Rs 1,432 crore. The insurance system ensures 98% of the total deposit accounts currently. Although the insured value of deposits stands at 43% the total assessable deposits amount to 100%. The insurance coverage of commercial banks stands at 41.9% while cooperative banks maintain a 63.3% level of protection for their deposits.
Potential Revisions and Industry Reactions
The government continues its assessment of raising insurance limits although experts fear this decision will harm banking performance. A complete risk assessment should precede all modifications to the coverage limit according to their views. Insurance premiums should be calculated through actuarial assessment to find the ideal policy limit in which banks should enrol.
Some financial experts believe that the present Rs 5 lakh threshold does not match the rising market value of deposit funds. The increased insurance limits would serve as better protection for those who depend on fixed deposits among senior citizens. All India Bank Depositors’ Association advocates for a comprehensive reform of deposit insurance by recommending banks pay premiums at levels based on their specific risk profiles.
Reactions from Financial Experts
Several experts within the banking sector have contributed their opinions regarding the government initiative. Most back the higher coverage threshold while emphasizing how to maintain fair treatment between bank clients and their institutions. The proposed raise in coverage levels would help strengthen bank system confidence following financial crises such as NICB. The extension of deposit insurance coverage might increase banks’ premiums which threatens their profit margin according to specific industry experts.
