{"id":45013,"date":"2025-02-19T07:29:41","date_gmt":"2025-02-19T01:59:41","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=45013"},"modified":"2025-05-06T16:30:41","modified_gmt":"2025-05-06T11:00:41","slug":"india-considers-raising-bank-deposit-insurance-limit","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/india-considers-raising-bank-deposit-insurance-limit\/","title":{"rendered":"India Considers Raising Bank Deposit Insurance Limit Beyond \u20b95 Lakh"},"content":{"rendered":"<h2>What\u2019s in Today\u2019s Article?<\/h2>\n<ul>\n<li>Deposit Insurance Latest News<\/li>\n<li>Bank Deposit Insurance<\/li>\n<li>Government&#8217;s Stand on Deposit Insurance<\/li>\n<li>DICGC\u2019s Coverage Limit: Key Points<\/li>\n<li>Evolution of Depositor\u2019s Insurance Ceiling<\/li>\n<li>The Case for Increasing Deposit Insurance Further<\/li>\n<li>Deposit Insurance FAQs<\/li>\n<\/ul>\n<h2>Deposit Insurance Latest News<\/h2>\n<ul>\n<li>The government is considering raising bank deposit insurance beyond the current \u20b95 lakh. The bank deposit insurance is provided by RBI&#8217;s Deposit Insurance and Credit Guarantee Corporation (DICGC).<\/li>\n<\/ul>\n<h2>Bank Deposit Insurance<\/h2>\n<ul>\n<li>It protects depositors from losing money if a bank fails. It is a key part of a financial safety net that helps stabilize the financial system.<\/li>\n<\/ul>\n<h3>1. Working<\/h3>\n<ul>\n<li>Depositors can access insured funds immediately.<\/li>\n<li>Prevents panic in the financial system.<\/li>\n<li>Shields depositors from liquidation risks.<\/li>\n<\/ul>\n<h3>2. Coverage<\/h3>\n<ul>\n<li>In India, the <strong>Deposit Insurance and Credit Guarantee Corporation (DICGC)<\/strong> insures deposits up to \u20b95 lakh.<\/li>\n<\/ul>\n<h3>3. Covered Banks<\/h3>\n<ul>\n<li>Commercial banks, foreign banks, local area banks, regional rural banks, and co-operative banks (excluding primary co-operative societies).<\/li>\n<\/ul>\n<h3>4. Covered Deposits<\/h3>\n<ul>\n<li>Savings, fixed, current, and recurring deposits.<\/li>\n<\/ul>\n<h3>5. Not Covered<\/h3>\n<ul>\n<li>Government and inter-bank deposits.<\/li>\n<\/ul>\n<h3>6. Premium<\/h3>\n<ul>\n<li>Paid by banks, collected based on risk profile.<\/li>\n<\/ul>\n<h3>7. Benefits<\/h3>\n<ul>\n<li>Protects small depositors from financial loss.<\/li>\n<li>Stabilizes the financial system.<\/li>\n<li>Prevents widespread panic during banking crises.<\/li>\n<\/ul>\n<h2>Government&#8217;s Stand on Deposit Insurance<\/h2>\n<ul>\n<li>The government is actively considering increasing deposit insurance. A final decision will be notified once approved.<\/li>\n<li>This was replied by the govt officials when asked about what the government was doing in the matter of the New India Co-operative Bank.<\/li>\n<\/ul>\n<h3>RBI\u2019s Actions on New India Co-operative Bank<\/h3>\n<ul>\n<li>RBI superseded the Board for 12 months due to poor governance.<\/li>\n<li>Restrictions imposed: No new loans, investments, liabilities, or payments without RBI approval.<\/li>\n<li>Effective from: February 13, 2025, for six months.<\/li>\n<li>The bank has 30 branches and reported losses in recent years.<\/li>\n<\/ul>\n<h2>DICGC\u2019s Coverage Limit: Key Points<\/h2>\n<ul>\n<li>Section 18A of the <strong>DICGC Act, 1961<\/strong> (inserted in 2021) ensures depositors receive interim payments in case the <strong>RBI imposes restrictions<\/strong> on a bank.<\/li>\n<li>Depositors can access their insured deposits up to <strong>Rs 5 lakh<\/strong> within <strong>90 days<\/strong> of such restrictions.<\/li>\n<\/ul>\n<h3>Insurance Coverage on Bank Deposits<\/h3>\n<ul>\n<li><strong>Maximum Coverage<\/strong>: Rs 5 lakh (including <strong>principal + interest<\/strong>).<\/li>\n<li><strong>Example 1<\/strong>: If a depositor holds Rs 4,99,800 (Rs 4,90,000 principal + Rs 9,800 interest), the <strong>entire amount is covered<\/strong>.<\/li>\n<li><strong>Example 2<\/strong>: If a depositor holds Rs 5,10,000 (Rs 5,00,000 principal + Rs 10,000 interest), only Rs <strong>5 lakh<\/strong> is covered\u2014interest beyond Rs 5 lakh is not insured.<\/li>\n<\/ul>\n<h3>Payment in Case of Bank Liquidation<\/h3>\n<ul>\n<li>If a bank is <strong>liquidated<\/strong>, DICGC pays the <strong>insured amount<\/strong> (up to Rs 5 lakh per depositor) to the <strong>liquidator<\/strong> within <strong>two months<\/strong> of receiving the claim list.<\/li>\n<li>The <strong>liquidator then distributes<\/strong> the claim amount to depositors.<\/li>\n<\/ul>\n<h2>Evolution of Depositor\u2019s Insurance Ceiling<\/h2>\n<ul>\n<li>Initially introduced in 1962 with a coverage of Rs 1,500 per depositor.<\/li>\n<li>Enhanced six times over the years, reaching Rs 1 lakh before 2020.<\/li>\n<li>Raised to Rs 5 lakh on February 4, 2020, after RBI&#8217;s action against Punjab and Maharashtra Co-operative Bank Ltd.<\/li>\n<li><strong>Growth of Insured Banks<\/strong>\n<ul>\n<li>Started with 287 banks in 1962.<\/li>\n<li>Increased to 1,997 insured banks as of March 31, 2024.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>The Case for Increasing Deposit Insurance Further<\/h2>\n<ul>\n<li>As of March 31, 2024, 97.8% of total accounts were fully insured, exceeding the international benchmark of 80%.<\/li>\n<li>RBI Deputy Governor M Rajeshwar Rao highlighted that India\u2019s growing and formalising economy will lead to a rise in both primary and secondary deposits.<\/li>\n<li>A higher deposit insurance cover would:\n<ul>\n<li>Provide better protection to depositors in case of bank failures (e.g., New India Co-operative Bank).<\/li>\n<li>Strengthen trust and confidence in the banking system.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>Deposit Insurance FAQs<\/h2>\n<p><strong>Q1.<\/strong> What is the deposit insurance scheme of RBI?<\/p>\n<p><strong>Ans.<\/strong> RBI\u2019s DICGC insures bank deposits up to \u20b95 lakh per depositor in case of bank failure.<\/p>\n<p><strong>Q2.<\/strong> What does deposit insurance protect?<\/p>\n<p><strong>Ans. <\/strong>It covers savings, fixed, current, and recurring deposits in commercial, foreign, rural, and cooperative banks.<\/p>\n<p><strong>Q3. <\/strong>Why did the RBI ban New India Cooperative Bank?<\/p>\n<p><strong>Ans.<\/strong> RBI banned it due to poor governance, financial instability, and non-compliance with banking regulations.\u00a0<\/p>\n<p><strong>Q4.<\/strong> What is meant by DCC bank?<\/p>\n<p><strong>An<\/strong>s. A District Central Cooperative (DCC) bank provides financial services to cooperative societies in a specific district.<\/p>\n<p><strong>Q5<\/strong>. What do you mean by deposit insurance?<\/p>\n<p><strong>Ans.<\/strong> Deposit insurance protects bank depositors by guaranteeing a portion of their funds if the bank fails.<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/what-is-deposit-insurance-cover-and-how-will-raising-it-help-you-9843556\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/www.imf.org\/external\/pubs\/ft\/fandd\/1999\/03\/tigert.htm#:~:text=The%20role%20of%20deposit%20insurance,%22run%22%20on%20the%20bank.\" target=\"_blank\" rel=\"nofollow noopener\">IMF<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/business\/raising-insurance-cover-5-lakh-consideration-financial-services-secretary-9841301\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Indian government may increase deposit insurance beyond \u20b95 lakh to enhance financial security<\/p>\n","protected":false},"author":5,"featured_media":45014,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-45013","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/45013","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=45013"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/45013\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/45014"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=45013"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=45013"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=45013"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}