Ceiling will be hiked to Rs 2 lakh from Rs 1 Lakh
The government plans to double the insurance cover on bank deposits from Rs 1 lakh to Rs 2 lakh in wake of the series of cooperative bank failures in the recent past.
A new Bill on bank deposit insurance is in the pipeline, which proposes to double the deposit insurance cover and will also examine the possibility of extending the scheme for deposits placed with non-banking finance companies (NBFCs).
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The widespread collapse of the Gujarat-based co-operative banks following the Madhavpura pay-order scandal saw a number of these banks shut shop.
Many depositors have yet to recover their funds and are awaiting insurance money from the Deposit Insurance and Credit Guarantee Corporation (DICGC).
A committee to revamp the DICGC had recommended that a separate corpus for co-operative banks and NBFCs ought to be set up.
In the late seventies, when many small banks were crumbling, the central bank assumed charge of the deposit liabilities of these banks through public banks. This was done to avoid public resentment and protect small depositors.
Under the DICGC Act 1961, the liability of the corporation was capped at Rs 1,500. The amount was revised upwards to Rs 5,000 in January 1968 and further to Rs 10,000 in 1970, Rs 20,000 in January 1976, Rs 30,000 in July 1980 and stands at Rs 1 lakh since May 1993.
The cover is available to each depositor of a bank under liquidation, and applies to all deposits of a person at various branches.
To protect the interest of fixed deposit holders of various NBFCs, the Reserve Bank of India had constituted a working group to examine the desirability of extending deposit insurance scheme for such deposits.
The committee included members from the finance ministry, General Insurance Corporation of India, DICGC, Insurance Regulatory and Development Authority, United India Insurance, ICICI Prudential Life Insurance, Investors