Mumbai: In a confidence boosting measure, the finance minister Nirmala Sitharaman in the Budget 2020 proposed to increase the limit of insurance cover in case of bank failure on deposits to Rs 5 lakh from the existing Rs 1 lakh.
The proposal comes in the wake of scam at Punjab & Maharashtra Cooperative Bank (PMC) and the furore over the Financial Resolution and Deposit Insurance (FRDI) Bill which had a bail-in clause for customer’s bank deposits.
Fixed deposits of all banks including foreign banks, regional rural banks and co-operative banks are currently insured upto Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation against default of banks due to liquidation, cancellation of banking licence or merger.
“I wish to inform this august House that robust mechanism is in place to monitor the health of all scheduled commercial banks and that depositors’ money is safe. Further, 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 Sitharaman in her Budget speech.
Experts said that while higher insurance cover on bank deposits should support the deposit accretion of banks, it would increase the premia cost for banks.
CH Venkatachalam general secretary of All India Bank Employees Association (bank union) said, “Already, under the provisions of the Banking Regulations Act, the deposits of our banks enjoy the guarantee and no bank can be closed down. By increasing the insurance cover, the cost will go up for the banks which in turn will be put on the shoulders of the banking public through hike in service charges. Increase in insurance cover on bank deposits is warranted only for
urban co-operative banks which are vulnerable.”
The current insurance cover of Rs one lakh continues from May 1, 1993 during this time the value of rupee has eroded sharply, necessitating immediate augmentation of coverage. However data pointed out that the bulk of the claims have come from co-operative banks.
Up to March 31, 2019, cumulatively Rs 295.9 crore has been paid towards claims for 27 commercial banks since the inception of deposit insurance in January 1962. On the other hand, the cumulative amount of claims paid/ provided for 351 co-operative banks since inception amounted to Rs.4822.3 crore. Cumulative recoveries from commercial banks aggregated Rs151.2 crore, as compared to cumulative recoveries of Rs.2607.1 crore from cooperative banks. As on March 31, 2019, the Deposit Insurance Fund of DICGC was Rs 97,350 crore including a surplus of Rs 87,890 crore.