Financial Services Department Secretary M. Nagaraju stated on Monday (17 February) that the government is actively considering raising the deposit insurance limit beyond the current Rs 5 lakh.
Currently, deposits up to Rs 5 lakh are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Deposit Insurance Scheme.
His statement comes just days after the alleged scam involving Maharashtra’s New India Co-operative Bank surfaced. Nagaraju confirmed that work is underway on this proposal.
During a press conference attended by Finance Minister Nirmala Sitharaman, she stated, “The issue of increasing the insurance limit is being actively considered. Once the government approves it, we will issue a notification.”
However, M. Nagaraju declined to comment on the crisis at New India Co-operative Bank, mentioning that the Reserve Bank of India (RBI) is handling the matter.
Deposit insurance claims are processed when a bank collapses, and the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been handling such claims over the years.
DICGC collects premiums from banks to provide this coverage, with most claims coming from cooperative banks.
Following the PMC Bank scam, the DICGC insurance limit was raised from ₹1 lakh to ₹5 lakh in 2020.
According to PTI, Economic Affairs Secretary Ajay Seth stated that the cooperative banking sector is functioning well under RBI supervision and remains strong overall.
He emphasized that issues in a single bank should not cast doubt on the entire sector, as it is the regulator’s responsibility to act against fraudulent entities.
Reports indicate that 90% of the 1.3 lakh depositors of New India Co-operative Bank will receive their full amount under DICGC coverage.
The scam surfaced when a physical inspection revealed a missing ₹122 crore in cash that was recorded in the ledger.
Investigations found that the bank’s General Manager-Finance, Hitesh Mehta, had allegedly diverted a significant portion of the funds to a local builder.
RBI data shows that in the financial year 2023-24, DICGC settled claims worth ₹1,432 crore, all for cooperative banks.
As of March 31, 2024, a total of 1,997 banks were registered with DICGC, including 140 commercial banks and 1,857 cooperative banks.
The current insurance limit of ₹5 lakh covers about 98% of all deposit accounts.
However, only 41.9% of deposits in commercial banks fall under this coverage, while for cooperative banks, the figure stands at 63.3%.
