Government Considering to Raise Deposit Insurance Limit

The Indian government is actively considering increasing the deposit insurance limit beyond the current ₹5 lakh, following the recent New India Co-operative Bank scam. The proposal was confirmed by M Nagaraju, Secretary of the Department of Financial Services, during a press conference alongside Finance Minister Nirmala Sitharaman.

Deposit Insurance Revision Under Consideration

Deposit insurance serves as a financial safeguard for bank depositors in case of a bank failure. The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides coverage by collecting premiums from banks. Currently, a claim is triggered when a bank collapses, and the majority of such claims historically involve cooperative banks.

The government last revised the insurance limit in 2020, increasing it from ₹1 lakh to ₹5 lakh following the Punjab and Maharashtra Co-operative (PMC) Bank crisis. The current discussions signal a further enhancement in depositor protection, although no official figure has been disclosed yet. Nagaraju stated that the proposal is under “active consideration” and will be announced upon approval.

New India Co-operative Bank Scam and Regulatory Oversight

The New India Co-operative Bank scam surfaced after a physical inspection revealed a ₹122 crore discrepancy between the bank’s books and actual cash holdings. Investigations uncovered that Hitesh Mehta, the bank’s general manager for finance, had allegedly diverted a substantial portion of the funds to a local builder.

Despite this incident, Economic Affairs Secretary Ajay Seth reassured that the cooperative banking sector remains well-regulated under the Reserve Bank of India’s supervision. He emphasised that a crisis in one institution should not cast doubt over the entire sector, reaffirming the regulator’s commitment to addressing financial misconduct. Notably, 90% of the bank’s 1.3 lakh depositors are expected to receive full compensation under DICGC insurance.

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