Government to Raise Bank Deposit Insurance to ₹8-12 Lakh by February-End

The government is in the final stages of increasing deposit insurance coverage from the current ₹5 lakh to ₹8-12 lakh, with an official announcement expected by the end of February 2025. This move aims to enhance depositor protection, particularly in light of recent financial stress in the cooperative banking sector.

Deposit Insurance Hike: Key Developments

• Proposed Increase: The insurance cover for bank deposits may be raised to ₹8-12 lakh.
• Official Confirmation: M. Nagaraju, Financial Services Secretary, had previously hinted at this move during a post-budget interaction.
• Final Stages: The decision is expected to be finalized and announced within February 2025.

Why the Deposit Insurance Hike Matters

The decision to increase bank deposit insurance comes at a time when New India Co-operative Bank is facing regulatory action by the Reserve Bank of India (RBI).

• The RBI has superseded the bank’s board and appointed an administrator after uncovering a ₹122 crore scam.
• Law enforcement has arrested the bank’s General Manager and an accomplice, with both in custody until February 21.
• The bank has been prohibited from issuing new loans, and deposit withdrawals have been suspended.

Given the rising risks in cooperative banks, a higher deposit insurance limit would provide better security to depositors and strengthen confidence in the banking system.

What is Deposit Insurance?

Deposit insurance protects bank depositors in case a bank is unable to repay its debts. The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI, administers deposit insurance across:

• Commercial banks
• Regional rural banks
• Local area banks
• Cooperative banks

Current Deposit Insurance Coverage in India

• Maximum insured amount: ₹5 lakh per depositor, per bank.
• Coverage: Includes savings, fixed, current, and recurring deposits.
• Exclusions: Deposits from foreign governments, central/state governments, and inter-bank deposits.
• Multiple bank accounts: The insurance limit applies separately to each bank.

How India Compares to Other Countries?

• Mexico, Turkey, and Japan offer 100% deposit insurance coverage to depositors.
• The United States was the first country to introduce a formal deposit insurance system in 1934.

Impact of the Proposed Deposit Insurance Increase

• Greater depositor protection: Will offer higher security to bank customers, especially in cooperative banks.
• Improved banking stability: Enhances trust in the Indian banking system.
• Potential boost to financial inclusion: May encourage more people to use banking services without fear of losing their money.

With the deposit insurance increase expected by February-end, depositors will soon have greater financial security, reducing risks from banking failures.