During her Budget speech in Lok Sabha on Saturday, Finance Minister Nirmala Sitharaman announced that deposit insurance cover for small depositors has been increased to Rs 5 lakh from Rs 1 lakh. This means that depositors will get back at most Rs 5 lakh if their bank goes ouyt of opertion.
This is the first time in 27 years that insurance limit on bank deposits has been revised. The matter of hiking deposit insurance coverage came to the fore after Mumbai-headquartered Punjab and Maharashtra Co-operative Bank (PMC Bank) came under RBI scanner last year.
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In wake of fraud at PMC Bank, FM Sitharaman had promised to re-visit the deposit coverage limit. Deposit insurance commenced in India with a limit of Rs 5,000 in 1968. This was revised to Rs 10,000 two years later in 1970. The next revision happened in 1976 to Rs 20,000. Again in 1980, the limit was changed to Rs 30,000. The last revision took place way back in 1993 when it was increased to Rs 1 lakh.
SBI Research had pointed in a recent paper that the deposit coverage in India is one of the lowest in terms of per captia income. This measure would be sentiment boosting one without putting any financial burden on the government.