The government has started implementing Budget announcements with Department of Financial Services (DFS) conveying the approval of the Centre to DICGC for raising the insurance cover on saving deposits to Rs 5 lakh per depositor, Finance Secretary Rajiv Kumar said on Tuesday.
The move will help boost confidence of people in the banking system which has been shaken after a scam last year in Punjab and Maharashtra Cooperative Bank (PMC Bank) which affected lakhs of customers.
At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and Credit Guarantee Corporation (DICGC) if a bank fails.
"Work has begun on Budget announcement. Department of Financial Services has given approval for raising deposit insurance cover from Rs 1 lakh to Rs 5 lakh. The change is being done after a gap of 27 years," Kumar said in a tweet.
Accordingly, he said, the banks will pay a premium of 12 paise against 10 paise per Rs 100 deposited.
Finance Minister Nirmala Sitharaman in her Budget speech on Saturday said a robust mechanism is in place to monitor the health of all scheduled commercial banks and that depositors' money is safe.
"Further, DICGC has been permitted to increase Deposit Insurance Coverage for a depositor, which is now Rs 1 lakh to Rs 5 lakh per depositor," she had said.
DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.
The deposit insurance scheme covers all banks operating in India including private sector, cooperative and even branches of foreign banks. There are some exemptions like deposits of foreign governments, deposits of central/state governments and inter-bank deposits.
Deposit insurance was static at Rs 1 lakh since 1993.
The Raghuram Rajan Committee on Financial Sector Reforms 2009 had recommended strengthening the capacity of DICGC, a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.
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