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Explained: The Budget proposal to increase the insurance cover on bank deposits

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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.

Explained: The Budget proposal to increase the insurance cover on bank deposits

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.

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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.

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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.

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