Budget 2020: Finance Minister Nirmala Sitharaman proposed to increase the insurance cover for bank depositors to Rs 5 lakh from the existing Rs 1 lakh. The existing Reserve Bank of India rules stipulate that in case of a bank failure, each depositor is insured up to a maximum of Rs 1 lakh for both principal and interest amount. The cover of Rs 1 lakh is irrespective of the deposit held by the customer in the savings or fixed deposit account and has been in force since 1993, when the cover was raised from Rs 30,000 to Rs 1 lakh.
Deposit insurance is a protection cover against losses on bank deposits if a bank fails financially and has no money to pay its depositors. All deposits maintained by a depositor across all branches of a failed bank are clubbed together for the purpose for availing of the deposit insurance scheme.
The deposit insurance scheme covers all banks operating in the country, including private sector, co-operative and branches of foreign banks in India. The scheme insures all categories of bank deposits, including savings, fixed and recurring deposits, and the deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of Reserve Bank of India.
In a circular released in June 2017, the RBI had directed all commercial, small and payments banks to “incorporate information about ‘deposit insurance cover’ along with the limit of coverage, subject to change from time to time, upfront in the passbooks”.
“Many banks still do not provide adequate details of the transactions in the passbooks and / or statements of account to enable the account holders to cross-check them. In the interest of better customer service, it has been decided that banks shall at a minimum provide the relevant details in respect of entries in the accounts,” the central bank had said.