Deposit Insurance Limit Financial Services Department Secretary M. Nagaraju says that the government is actively considering increasing the deposit insurance limit. A few days after the alleged scam of New India Co-operative Bank came to light, Nagaraju said that work is in progress on such a proposal. Currently this limit is Rs 5 lakh.
The government is seriously considering increasing the limit of deposit insurance. Right now this limit is Rs 5 lakh. This means that if a bank sinks now, then the customers depositing money in it will get up to Rs 5 lakh. However, considering inflation and other factors, this limit is considered to be very low. There is a constant demand to increase it.
On this, Secretary of the Department of Financial Services M. Nagaraju says that the government is actively considering increasing the limit of deposit insurance from the current Rs 5 lakh. A few days after the alleged scam of New India Co-operative Bank came to light, Nagaraju said that work is going on on such a proposal.
He said in the presence of Finance Minister Nirmala Sitharaman, ‘As soon as the government approves, we will issue its notification.’ However, Nagaraju refused to comment on the crisis of New India Co-operative Bank. He said that RBI is looking into this matter.
Deposit insurance claims kick in when a lender goes under. Over the years, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been paying such claims. The body collects a premium from banks for the ‘cover’ it provides and most of the claims have been made in the case of co-operative lenders. According to reports, 90 per cent of the 1.3 lakh depositors of New India Co-operative Bank will get the full amount from DICGC.
What is the New India Co-operative Bank case?
RBI has found serious flaws in the functioning of New India Co-operative Bank. It dissolved the bank’s board for one year. The functioning of the bank will now be looked after by an RBI-appointed administrator. A committee of advisors has also been appointed, which will help the administrator in the functioning. RBI has also banned deposits and withdrawals for the bank. This means that customers will not be able to withdraw their money until the RBI ban is lifted.
Mumbai Police has also registered a case of embezzlement of Rs 122 crore against the bank’s general manager and head of accounts and their associates. It will now be investigated by the Crime Branch (EOW) of Mumbai Police.
The limit was increased after the PMC Bank scam
In September 2019, with the help of a whistle-blower, RBI came to know that PMC Bank was using fake bank accounts to give a loan of about Rs 6500 crore to a Mumbai real estate developer. To avoid this, RBI imposed some restrictions on withdrawal of money on 24 September 2019.
After this, the demand for increasing the deposit limit had intensified. The government had increased the insurance limit from Rs 1 lakh to Rs 5 lakh in 2020 after the PMC Bank scam.
