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Budget 2020: After PMC Crisis, Depositors Insured Upto Rs 5 Lakh

The increase in DICGC cover comes after incidents like the PMC bank crisis in 2019.

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The 2020 Union Budget will increase the insurance cover for depositors in banks to Rs 5 lakh if the bank fails or goes under, the finance minister said.

After instances like the case of PMC Bank in 2019, the 2020 Union Budget has permitted the Deposit Insurance and Credit Guarantee Corporation(DICGC) to raise the insurance cover for depositors to Rs 5 lakh per depositor from Rs 1 lakh.

In simple terms, the previous limit on insurance coverage under the DICGC provided for a recovery upto Rs 1 lakh for depositors in banks across India.

Which meant if a depositor had Rs 95,000 in an account in any Indian bank, they could recover the full amount, but if they had any amount above Rs 1 lakh, say Rs 25 lakh, in an account in any Indian bank, the most they could receive under the insurance coverage would only be Rs 1 lakh.
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This was heavily criticised both by depositors and finance experts, since this limit was created under the DICGC’s rules in 1993.

Apart from this revision, the finance minister also said that a mechanism would be made to address liquidity constraints of Non-Banking Financial Companies(NBFCs) and house finance corporations. The government will also offer support by guaranteeing securities floated to provide liquidity for NBFCs, she added.

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