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Depositors get higher protection cover after 27 years

Before the budget, the government was discussing the proposal to double the insurance cover on bank deposits to Rs 2 lakh

, ET Bureau|
Last Updated: Feb 01, 2020, 04.43 PM IST
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Budget speech: Deposit insurance cover increased to Rs 5 lakh; Govt to sell its holding in IDBI Bank
Budget speech: Deposit insurance cover increased to Rs 5 lakh; Govt to sell its holding in IDBI Bank
Depositors may heave a sigh of relief as the government has raised the deposit insurance limit five-fold to Rs 5 lakhs after twenty seven years.

Demand for raising the deposit insurance limit gained momentum after a run on a large sized multi-state co-operative bank after it came under an RBI administrator for financial irregularities pertaining to loans to real estate firm HDIL.

“ The Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance Coverage for a depositor, which is now ` one lakh to ` five lakh per depositor” said finance minister Nirmala Sitharaman in her Budget speech to the Parliament, assuring that the house that the deposits with the country’s commercial banks are safe .

The rise in the limit may not make a case for a higher insurance premium by the banks, as a majority of the deposits would never reach that stage. “At any point in time, on a conservative estimate, 85 per cent of the banks will never fail” said Satish Marathe, founder of Sahakar Bharati, an industry body for the co-operative sector, which had made a representation to the government to raise the limit to Rs 5 lakh from prevailing Rs one lakh.” So, accordingly, claims are not going to come through and hence there is no case for increasing the premium”.

Currently the premium is priced at Rs 10 per Rs 10,000 of deposit covered from April. 92 per cent of the total deposit accounts which is about 28 per cent of all deposits in terms of value as of March, 2019, are fully protected according to the latest data provided in DICGS annual report. The Corporation insures all bank deposits, such as savings, fixed, current as well as recurring deposits. The demand for raising the deposit insurance cover limit has been there for a very long time, with the latest instance that the issue had come up was at the time of the Financial Resolution and Deposit Insurance Bill, which the government had introduced in its previous term in 2017 and then withdrew the following year.

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