The government’s announcement is called to be in a very proximate future to cut across millions of account holders in the country. By the end of February 2025, it is anticipated that an important announcement will come up concerning bank fixed deposits (FDs) along with the safety of funds in your accounts.
Sources unravel that this could impose a direct impact on the deposit insurance cover for several crores of Indians. Let’s break down further what this means to you.
Big Update for the Commoners
According to sources that are very close to Moneycontrol, the central government is looking to increase the insurance cover for bank deposits from ₹5 lakh to around ₹8-12 lakh. This is likely to be finalized by the end of this month.
Earlier, Secretary of Financial Services M. Nagaraju made a hint in a post-budget discussion where he said the government is taking requisite actions toward raising the deposit insurance limit.
For a majority, their hard-earned earnings getting kept in banks has always been an issue. It raises questions like, “What happens to my money in a bank if it faces a financial crisis or even shuts down?” The answer lies in deposit insurance, and the government is now working to boost this barrier.
What is Deposit Insurance?
Deposit insurance is a method of protection for the money of common citizens. If an economic failure or crisis prevents the capability of a bank to pay back to its customers, deposit insurance guarantees compensation to depositors.
It includes deposits in terms of savings accounts, fixed deposits (FDs), and current accounts, except in the case of deposits by foreign, central, or state governments, and inter-bank deposits.
At present, deposit insurance is available for ₹5 lakh per depositor with each bank above this amount. To put it simply, if all of your single bank deposits (combined from all accounts) do not go beyond ₹5 lakh, the bank is considered 100% secured. Amounts over this limit are not catered for.
Key Highlights of Deposit Insurance
Who Provides Deposit Insurance?
- The Deposit Insurance and Credit Guarantee Corporation (DICGC), set up under the Reserve Bank of India (RBI), is the insurance provider in India. In case of the failure or closing down of a bank, it does reimburse the depositors.
Current Insurance Coverage
- ₹5 lakh per depositor per bank: This is valid for the total sum deposited in all accounts (savings, current, FD, etc.) in one bank.
- Example: you have ₹2 lahks in the savings account and ₹3 lakh in FD in the same bank, then your entire ₹5 lahks is insured. But if the total deposit is ₹7 lakh, then only ₹5 lakh is covered, and the rest of ₹2 lakh is not insured.
Which Banks Are Covered?
- Included: Banks having a current license under the RBI, such as the public sector banks, private banks, foreign banks, regional rural banks, as well as cooperative banks.
- Excluded: The banks, that presently no longer have the RBI license, fall outside the purview of the DICGC.
Multiple Accounts in the Same Bank
- If you open multiple bank accounts in the same bank (though different branches), the insurance limit is up to ₹5 lakh in total.
Open Accounts in Different Banks
- The limit of insurance of ₹5 lakh applies separately to each bank. For example- If the customer has ₹5 lakh with Bank A and also commissions another ₹5 lakh with Bank B, full insurance applies to both accounts.
How to Claim Insurance?
The DICGC pays depositors its insured amount once RBI declares a bank as failed or cancels its license. But this does not mark an instant process. It is followed by a liquidation or restructuring of the bank, and only then do they become available.
This will take it from the currently prescribed limit of ₹5 lakh in deposit insurance to be more than ₹8-12 lakh and is a great step ahead in providing millions of Indians with enhanced financial security. In addition to protecting every deposit holder, it will also instill trust among the banking community.
Final Words
This is a very important decision of the government as it proves its commitment to the financial well-being of the ordinary citizen. This would further bring consumers peace of mind with the prospect of an increased deposit insurance limit.
More updates on this biggest banking news will be available as the government decides in February 2025.