The government is considering raising the insurance cover for bank deposits to ₹8-12 lakh, according to Moneycontrol report.

The revised deposit insurance limit is expected to be announced by the end of February, the report said.

M Nagaraju, Financial Services Secretary, had indicated during a post-budget interaction that the government was evaluating an increase in deposit insurance coverage.

The move is aimed at providing greater security to depositors, especially in light of recent concerns surrounding cooperative banks.

Backdrop: The New India Co-operative Bank crisis

The proposal to enhance deposit insurance comes at a time when regulatory scrutiny over cooperative banks has intensified.

The Reserve Bank of India (RBI) recently imposed strict restrictions on Mumbai-based New India Co-operative Bank due to supervisory concerns. Depositors cannot withdraw funds as the bank faces liquidity issues.

Understanding deposit insurance in India

Bank deposit insurance in India is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI. The DICGC ensures protection for depositors across commercial banks, regional rural banks, local area banks, and cooperative banks.

In the event of a bank failure, depositors are currently insured up to ₹5 lakh per individual per bank.

The last revision in deposit insurance occurred in 2020 when the limit was raised from ₹1 lakh to ₹5 lakh in the wake of the Punjab and Maharashtra Co-operative (PMC) Bank crisis.