Finance Ministry likely to increase deposit insurance limit from ₹5 lakh

  • February 18, 2025
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Finance Ministry likely to increase deposit insurance limit from ₹5 lakh

Sub: Eco

Sec: Monetary policy

Why in News?

  • The Finance Ministry is actively considering an increase in the deposit insurance limit beyond the current ₹5 lakh.
  • The move follows recent liquidity issues at the Mumbai-based New India Cooperative Bank due to an embezzlement of ₹122 crore.

Rationale for Increasing Insurance Limit

  • Rising Instances of Bank Failures
  • Growing Depositor Base
  • Inflation Impact
Key Concepts

Deposit Insurance Framework

  • Deposit Insurance: Protects depositors’ funds in case of bank failure.
  • Regulatory Authority: Deposit Insurance and Credit Guarantee Corporation (DICGC).

About DICGC (Deposit Insurance and Credit Guarantee Corporation):

Origins & Governance:

  • Formed: 1978 (via merger of DIC & CGCI).
  • Legal Framework: DICGC Act, 1961.
  • Parent: RBI (fully owned subsidiary).

Deposit Insurance Scheme:

  • Coverage: ₹5 lakh per depositor across savings, current, fixed, and recurring accounts; earlier ₹1 lakh (fixed in 1993; revised after PMC Bank collapse)
  • Premium: 12 paise/₹100 deposit (paid by banks, not depositors).
  • Frequency: Paid semi-annually based on previous half-year’s deposits. 

Coverage Details:

  • Includes: Banks, RRBs, Local Area Banks, Foreign banks (branches in India), & Cooperative banks.
  • Primary cooperative societies are not insured by the DICGC.

Types of Deposits covered: – DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits.

  • Deposits of foreign governments and of central/state governments.
  • Inter-bank deposits.
  • Deposits of the state land development banks with the state co-operative bank.
  • Any amount due on account of any deposit received outside India.

Any amount specifically exempted by the DICGC with previous approval of RBI.

Funds Managed by DICGC:

  • Deposit Insurance Fund: Insurance coverage for depositors if a bank fails. It is funded by premiums from banks.
  • Credit Guarantee Fund: Ensures creditors get remedies if debtors default.
  • General Fund: Covers DICGC’s operational expenses, funded by surplus from its operations.
economy Finance Ministry likely to increase deposit insurance limit from ₹5 lakh