Rs 5 Lakh Insurance on Deposits to Bank Customers Within 90 Days of Moratorium

Finance Minister Nirmala Sitharaman said that 98.3 percent of all deposits will be covered.

The Centre on 28 July cleared amendments in the DICGC Act.

(Photo: The Quint)

In a bid to support the distressed customers of banks that collapse or are duped by financial frauds, the Centre on Wednesday, 28 July, cleared amendments in the Deposit Insurance Credit Guarantee Corporation (DICGC) Act to provide the depositors an insurance of Rs 5 lakh within 90 days after the bank is placed under moratorium by the RBI.

"Deposit Insurance Credit Guarantee Corporation was created in case people faced difficulties after RBI imposes moratoriums on banks. Today's Cabinet meeting has decided that within 90 days, depositors will receive Rs 5 lakhs of their money," Union Minister Anurag Thakur said in a press briefing.

Finance Minister Nirmala Sitharaman said that 98.3 percent of all deposits will get covered and in terms of deposit value, 50.9 percent will be covered.

"This is higher than what cover is provided internationally, that is about 80 percent of deposit accounts and 20-30 percent of deposit value," she said.

According to Sitharaman, the bill will increase insurance amount on each depositor's bank deposit to Rs 5 lakh in both principal and interest.

The amount guaranteed under the Act will be available to depositors of all banks and financial institutions including those sectors where the bank has gone into moratorium, reported IANS.

The new bill will also provide a time-bound process to clear the insured deposit amount. This will have to be cleared within 90 days, irrespective whether the bank is undergoing a resolution or going in for liquidation.

Various definitions would also be changed under the new bill to cover a larger section of depositors under the deposit insurance programme, according to the IANS report.

FM Sitharaman added that premium charged for giving this cover is currently 10 paisa for every Rs 100 of deposits. This is being raised to 12 paisa now and can be changed further up but with concurrence of RBI and the Finance Ministry within a limit.

The move comes as a relief to the customers of banks placed in moratorium by the Reserve Bank of India (RBI), if they run into financial troubles.

DICGC is a subsidiary of the RBI that was established in 1978 to provide insurance of deposits such as saving, fixed, current and recurring.

(With inputs from ANI and IANS)