The Indian government is actively considering increasing the bank deposit insurance limit beyond the current ₹5 lakh to enhance depositor confidence and financial stability. This move comes in the wake of recent banking challenges, notably the restrictions imposed on New India Co-operative Bank due to supervisory concerns. The Reserve Bank of India (RBI) intervened by halting withdrawals and appointing an administrator, highlighting the need for stronger depositor protection mechanisms.
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, currently provides insurance coverage up to ₹5 lakh per depositor. This limit was last revised in 2020, up from the previous ₹1 lakh, following financial irregularities in certain banks. The proposed increase aims to further safeguard depositor interests, especially in light of recent cooperative bank failures.
Financial Services Secretary M. Nagaraju has indicated that the Finance Ministry is reviewing the proposal and will notify the public once a decision is finalized. While the exact new limit has not been specified, discussions suggest a potential increase to ₹10 lakh or even ₹15 lakh. This adjustment is expected to bolster depositor confidence, particularly among those with substantial savings in banks.
However, this proposed hike in deposit insurance could have financial implications for banks. According to a report by rating agency ICRA, increasing the insurance limit may lead to higher premium costs for banks, potentially impacting their profitability. Estimates suggest that banks’ profits could decrease by approximately ₹12,000 crore if the insurance coverage is raised.
In summary, the government’s consideration to raise the bank deposit insurance limit reflects a proactive approach to strengthening the financial safety net for depositors. While this move aims to enhance public trust in the banking system, it also necessitates a careful assessment of the potential economic impact on banking institutions to maintain a balanced and robust financial ecosystem.
