Government Considers Raising Deposit Insurance Limit Amid Banking Crisis

The government is actively considering raising the deposit insurance limit beyond Rs 5 lakh, informed DFS Secretary, M Nagaraju. This proposal comes amid the financial crisis faced by New India Cooperative Bank. The RBI has imposed restrictions on the bank to manage the situation effectively.

The Indian government is contemplating an increase in the deposit insurance scheme limit, currently capped at Rs 5 lakh, according to M Nagaraju, Secretary of the Department of Financial Services. "The government is in deliberation and will announce any updates," he stated during a press briefing in Mumbai, addressing the current predicament of New India Cooperative Bank.

Secretary Nagaraju emphasized the ongoing consideration to enhance depositor protection. Deposit insurance in India, initiated in 1962 following the American precedent set in 1933, aims to mitigate risks linked with banking crises globally. While the future of the beleaguered Mumbai-based bank remains uncertain, Nagaraju chose not to elaborate further, citing that the Reserve Bank of India (RBI) is handling the matter.

Deposit insurance, managed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), presently covers deposits up to Rs 5 lakh, following a revision from Rs 1 lakh effective February 2020. With the RBI's intervention on February 14, New India Cooperative Bank's Board of Directors was dissolved, signaling urgent governance concerns. This action followed restrictions imposed on the bank by the RBI, triggering widespread panic among account holders attempting to secure their deposits.