The Finance Ministry may soon increase the deposit insurance limit to Rs 5 lakh from the current Rs 1 lakh. If this hike comes into effect, it will be the first upward revision in deposit insurance.
The last revision in the current limit of deposit insurance was effected on May 1, 1993, after the Bank of Karad collapsed in the securities scam of 1992.
The ministry is also likely to introduce a new scheme increasing the deposit insurance for wholesale depositors to Rs 25 lakh, the Business Standard reported.
A regulatory official told the news daily that he "more than hoped the Ministry of Finance will hike the deposit insurance limit. It is long overdue."
These two points are also likely to be taken up for discussion at the Reserve Bank of India's (RBI) central board meet on December 13 in Odisha's capital Bhubaneswar.
Meanwhile, the finance ministry may also take up two other proposals. First, allowing banks to get additional deposit insurance, beyond the proposed enhanced limits, for both individuals and institutions by payment of an additional premium.
Second, that the Deposit Insurance and Credit Guarantee Corporation (DICGC), the wholly-owned subsidiary of the RBI, establish a separate reserve to safeguard the interests of depositors of banks which fail owing to scams just as in the case of the Punjab & Maharashtra Co-operative Bank (PMC Bank) and the Pen Co-operative Urban Bank, the report added.
However, the report could not ascertain if the finance ministry and RBI would consider the concept of risk-based premium (RBP) for deposit insurance.
If implemented, it might lead to a situation where depositors would have the option to shift their deposits to more secure banks. But, only if the RBP paid out is disclosed publicly or gets leaked.