Currently, deposits up to Rs 1 lakh are covered by insurance under the Deposit Insurance & Credit Guarantee Corporation (DICGC) Act. This compensation was last set 25 years ago
The proposal comes after the Reserve Bank of India (RBI) faced criticism over its handling of the Punjab and Maharashtra Cooperative (PMC) Bank closure in September last year.
Moneycontrol could not independently verify the story.
The government is planning to permit emergency access to deposit insurance when a bank fails, inflation indexation of the insurance cover and risk-based pricing of the insurance premium.
“The biggest bone of contention is higher premium payout if the deposit cover is raised. I think banks will have to bear the burden of that, but at least they should consider forcing less robust institutions to pay a higher premium cover,” a banking official told the paper.
Rather than making a change to the DIGC Act, 1960 directly, the government might introduce a amendment that would help modify the insurance cover.Finance Minister Nirmala Sitharaman will present the Budget on February 1.