Govt mulls raising ₹5 lakh deposit insurance limit amid New India Co-op bank crisis

The government is “actively considering” raising the deposit insurance limit beyond the current ₹5 lakh, a senior finance ministry official said on Monday, days after the New India Co-operative Bank scam came to light.

Department of Financial Services Secretary M Nagaraju said discussions are underway regarding the proposal.

“The point about increasing insurance... that is under active consideration. As and when the government approves, we will notify it,” Nagaraju told reporters at a press conference in the presence of Finance Minister Nirmala Sitharaman.

He, however, declined to comment on the crisis at New India Co-operative Bank, stating that the Reserve Bank of India (RBI) is handling the matter.

The RBI last week imposed several restrictions on Mumbai-based New India Co-operative Bank Limited due to supervisory concerns. It barred the bank from granting or renewing loans, making new investments, borrowing funds, or accepting fresh deposits. It has also restricted withdrawals from savings and current accounts, except in cases permitted by the central bank.

The measures, effective from the close of business on February 13, have raised anxieties among depositors.

Depositors are eligible for insurance coverage of up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme. The deposit insurance limit was raised from ₹1 lakh to ₹5 lakh in 2020 following the Punjab and Maharashtra Co-operative (PMC) Bank crisis.

The bank, in a notice to depositors, assured them that their deposits up to ₹5 lakh are insured and expected to be paid within 90 days by DICGC.

Investigations into the New India Co-operative Bank have revealed a ₹122 crore discrepancy in cash reserves, allegedly linked to the bank’s former general manager for finance, Hitesh Mehta. A substantial portion of the missing funds was reportedly given to a local builder.

Following the revelation, the RBI on Friday superseded the bank’s Board of Directors for 12 months and appointed Shreekant, former Chief General Manager of State Bank of India (SBI), as administrator. A committee of advisors, including Ravindra Sapra, former SBI General Manager, and chartered accountant Abhijeet Deshmukh, has been formed to assist in managing the bank’s affairs.