Explained: The Budget proposal to increase the insurance cover on bank deposits
New Delhi, Feb 04: In the Union Budget that was tabled on Saturday, the government proposed to increase the insurance cover on bank deposits from Rs 1 lakh to Rs 5 lakh.
This was done with the aim of instilling more trust of the public in the banking system.
Why was the insurance cover hiked:
In September 2019, the Reserve Bank of India had slapped curbs on the Punjab and Maharashtra Cooperative Bank and also appointed an administrator, while superseding the board of directors.
This led to panic among the depositors. The customers rushed to the banks but were unable to withdraw more than Rs 1,000, which led to protests.
What is the DICGC:
The Deposit Insurance and Credit Guarantee Corporation is a subsidiary of the RBI. It gives insurance cover of up to Rs 1 lakh on deposits in banks. Now the banks will ensure deposits up to Rs 5 lakh.
How does it benefit depositors:
When the bank collapses, depositors will get insurance of Rs 5 lakh from the corporation. However it must be noted that irrespective of the amount deposited, a customer would be entitled only for Rs 5 lakh insurance cover.