The Union government had increased the insurance cover for bank deposits to Rs 5 lakh, from Rs 1 lakh, guaranteeing timely refund to account holders in case of unforeseen situations like closure or bankruptcy.

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Speaking at ‘Depositors First: Guaranteed Time-Bound Deposit Insurance Payment up to Rs 5 lakh,’ on December 12, Prime Minister Narendra Modi said the government had paid Rs 1,300 crore to depositors who could not access their accounts after banks faced a financial crisis.

The PM highlighted that the move to increase the insurance cover is going to insure Rs 76 lakh crore of depositors’ wealth, which is 98.1 percent of the total accounts in the banking system.

The banks now have to return the money to the depositors even in case of a moratorium imposed by the Reserve Bank of India (RBI). The amendments made to the Deposit Insurance and Credit Guarantee Corporation Act now mandates the banks to refund the money to depositors within 90 days.

The deposit insurance scheme had come under the spotlight after account holders recently faced problems accessing their funds in stressed banks like Yes Bank, Punjab & Maharashtra Co-operative (PMC) Bank and Lakshmi Vilas Bank.

Also read: PMC Bank customers not to get Rs 5 lakh deposit cover in first lot

Deposit insurance is offered to depositors by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI. The scheme covers all types of bank deposits -- savings, fixed and recurring, except deposits of a foreign government, interbank deposits and deposits of Central and state governments. The insured amount had remained static since 1993 after it was raised to Rs 1 lakh from the previous limit of Rs 30,000, set in 1980.

Prior to the amendments, the deposit insurance law did not guarantee a timeline for the refund of their deposit and account holders had to wait for months and years till the liquidation and restructuring process of a moratorium-hit bank was completed.

Also read: From today onwards, insurance cover on bank deposits raised to Rs 5 lakh by RBI

The move, however, does not offer any legal guarantee to depositors who have more than Rs 5 lakh in their accounts.

The move to enhance the insurance limit is likely to restore confidence in the banking system after depositors struggled to salvage their funds after a series of bank collapses in the past few years.

(Edited by : Shoma Bhattacharjee)

First Published:Dec 13, 2021 7:50 PM IST