Budget 2020: Nirmala Sitharaman proposes to increase insurance cover for bank depositors to Rs 5 lakh

Union Finance Minister Nirmala Sitharaman suggested to augment the insurance cover for the bank depositors to Rs 5 lakh from the current Rs 1 lakh. The present Reserve Bank of India (RBI) rules lay down that in case of a bank failure, each depositor is insured to a extreme of Rs 1 lakh for both principle and interest amount.

The cover of Rs 1 lakh is without reference to the deposit held by the customer in the saving or fixed deposit account and has been in effect since 1993, when the cover was elevated from Rs 30,000 to Rs 1 lakh.

Deposit insurance is a safeguarding cover in opposition to losses on bank deposits if a bank fails financially and has no money to pay out its depositors. All deposits sustained by a depositor covering all branches of a failed bank are joining forces for the motive for availing of the deposit insurance scheme.

The deposit insurance scheme takes in all banks functioning in the country, which includes private sector, co-operative and branches of overseas banks in India. The scheme guarantees all categories of bank deposits, including savings, fixed and recurring deposits, and the deposits are warranted by Deposit Insurance and Credit Guarantee Corporation, which is a subordinate of RBI.

In a notice issued in July 2017, the RBI had instructed all commercial, small and payments bank 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.

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