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This article is more than 1 year old.

Hike in bank deposit insurance cover: Here's how it will impact customers

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Reserve Bank of India (RBI) recently increased the bank deposit insurance cover to Rs 5 lakh from Rs 1 lakh. Here are key things to know about bank deposits insurance cover

Hike in bank deposit insurance cover: Here's how it will impact customers
Reserve Bank of India (RBI) recently increased the bank deposit insurance cover to Rs 5 lakh from Rs 1 lakh. This development came after Finance Minister Nirmala Sitharaman made an announcement regarding increasing insurance cover in her Budget Speech. Deposit insurance is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors.
Here are key things to know about bank deposits insurance cover:
Background
Deposit insurance is offered by Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI. It was static at Rs 1 lakh since 1993. Under this scheme, all types of bank deposits such as savings, fixed and recurring are covered.
The deposit insurance scheme covers all banks operating in India, including the private sector, cooperative and even branches of foreign banks. There are some exemptions, however, such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.
The DICGC while registering the banks as insured banks furnish them with printed leaflets for display giving information relating to the protection afforded by the corporation to the depositors of the insured banks. In case of doubt, the depositor should make a specific enquiry from the branch official in this regard.
According to DICGC annual report for 2018-19, a total amount of Rs 296 crore was paid toward claims of 27 commercial banks since the inception of deposit insurance.
The announcement
As per the announcement, the limit of the total amount payable by DICGC to any depositor with respect to the deposits with the bank has been hiked to Rs 5 lakh. As the insurance cover stands increased, the banks will now pay a premium of 12 paise against 10 paise per Rs 100 deposit.
The move will help boost the confidence of people in the banking system after a scam last year in Punjab and Maharashtra Cooperative Bank (PMC Bank) which left lakhs of customers stranded.
What experts say
Zarin Daruwala, CEO, India, Standard Chartered Bank said, “ Enhancement in deposit insurance coverage is a step in the right direction.” Rajnish Kumar, Chairman, SBI also welcomed the move.
According to Pankaj Tibrewal, Senior Vice President & Fund Manager (Equity), Kotak Mahindra Asset Management Company, this move will provide more comfort to the ordinary Indian citizens, who park a chunk of their life savings in India’s banking system.
"While this could mean some expenditure for the bank, this would certainly give comfort to retail savers," said RK Gurumurthy - Head Treasury, Lakshmi Vilas Bank.
Adhil Shetty, CEO, BankBazaar said, "It was a necessary step to boost depositor sentiment following some bank runs. The increase in deposit insurance was overdue. This will certainly give a sense of security to depositors, especially senior citizens, who rely on their deposit interest for regular income needs in their golden years.”
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