Plan to hike deposit insurance limit in banks, says Finance Ministry

Finance Ministry considers raising deposit insurance limit from ₹5 lakh, following RBI curbs on New India Co-operative Bank.

The Finance Ministry is considering raising the current limit of ₹5 lakh for deposit insurance, Secretary to the Department of Financial Services M. Nagaraju said at a post-Budget press briefing in Mumbai on Monday (February 17, 2025).

“That [increasing deposit insurance] is under active consideration. As and when the government approves, we will notify it,” he said. Finance Minister Nirmala Sitharaman, along with other secretaries in various departments, was present at the briefing.

The official’s statement comes days after the Reserve Bank of India (RBI) placed curbs on the Mumbai-based New India Co-operative Bank for lack of liquidity. The bank’s General Manager and Head of Accounts, Hitesh Mehta, was later found to have embezzled ₹122 crore over a year and was put in police custody for five days on February 16.

Mr. Nagaraju, however, declined to comment on the matter, saying the RBI had taken action on the issue.

Asked about the safety of deposits in co-operative banks, Secretary to Department of Economic Affairs Ajay Seth maintained that it was the job of the regulator and that co-operative banks were working well in many States. “The co-operative banks in the country today are under investigation. If there is any weakness in this, then it is the work of the regulator. If there is any weakness in this, then regulatory action should be taken on it. But it is not right to take a decision on the whole sector with the action of one bank. Co-operative banks are working very well in various States. There should not be any confusion about them. It is a well-regulated sector now.” said Mr. Seth.

Money deposited by bank customers is insured under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a company under the Finance Ministry. When a bank fails due to uncertainties and the RBI steps in to stop withdrawals, the DICGC acts as a guard to secure the money of depositors.

The insurance company has been effective since January 1968. The deposit insurance limit was increased to ₹5 lakh in 2020 from ₹1 lakh that was fixed in 1993, following the failure of the Punjab and Maharashtra Co-operative Bank.