Govt to raise deposit insurance limit from ₹5 lakh to ₹50 lakh? Nirmala Sitharaman replies in Lok Sabha

Finance Minister Nirmala Sitharaman on Monday said that any revision to the existing ₹5 lakh limit for deposit insurance would depend on the financial position of the Deposit Insurance and Credit Guarantee Corporation (DICGC) and the overall banking system.

In a written reply to the Lok Sabha, Sitharaman said that under Section 16(1) of the DICGC Act, the corporation may increase the deposit insurance limit from time to time with prior government approval, considering its financial strength and the interest of the banking system.

Lok Sabha members Suresh Kumar Shetkar and K Sudhakar had asked whether the government was considering raising the current limit of ₹5 lakh to ₹ 50 lakh for deposit insurance to protect the interests and confidence of the small investors.

“"DICGC considers its financial position and the interest of financial system of the country to make a suitable proposal to Government for enhancing the deposit insurance limit as per section 16(1) of the DICGC Act,” the statement read.

Currently, all commercial banks, small finance banks, payment banks, regional rural banks, and cooperative banks, including urban cooperative banks and state cooperative banks, are covered under the deposit insurance scheme.

The clarification comes amid recent speculation about a possible increase in the insurance cover following comments from a senior finance ministry official. Last month, Department of Financial Services Secretary M Nagaraju said the government was "actively considering" raising the deposit insurance limit.

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

The issue has gained traction in light of the recent crisis at Mumbai-based New India Co-operative Bank, where the Reserve Bank of India (RBI) imposed restrictions, barring the lender from issuing loans or accepting fresh deposits due to supervisory concerns. The RBI later allowed depositors to withdraw up to ₹25,000.

The New India Co-operative 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.

The deposit insurance limit was last increased in February 2020, when it was raised from ₹1 lakh to Rs 5 lakh following the Punjab and Maharashtra Co-operative (PMC) Bank crisis.