Good news for bank customers! Govt to consider raising insurance cover on deposits from Rs 1 lakh

In a relief for crores of depositors, Finance Minister Nirmala Sitharaman on Friday said the government would bring legislations on raising insurance cover on bank deposits from the current Rs 1 lakh  in the wake of fraud in PMC Bank. The RBI in September imposed restrictions on the lender after PMC Bank did not classify Rs 2,500-crore loan to real estate firm Housing Development and Infrastructure Limited (HDIL) as NPA despite the firm's default on repayments.

Eventually, RBI took stock of the situation and termed the loan as "complete loss". The RBI order came as a shock to lakhs of customers across six states where the bank is operational. The bank has over Rs 11,000 crore in deposits from its customers across 137 branches.

Also read: Your bank wants you to know - explicitly - you will only get Rs 1 lakh if it goes bust

The government would also introduce legislation to regulating multi-state cooperative banks during the Winter Session of Parliament starting Monday, the finance minister said.

"Work is on and we shall go to the Cabinet for approval to introduce a legislation in winter session. The legislation will amend the necessary Acts and the laws to make sure that banking functions undertaken by cooperatives sector will be brought under the Banking Regulation Act for complying with prudential norms," she said.

Unless the prudential norms are applied, many of the things that are emerging in the light of the Punjab and Maharashtra Cooperative (PMC) Bank crisis will never be addressed and this legislation will ensure that no PMC like case happens in the future, she added.

Also read: You get only Rs 1 lakh if your bank goes bust; time to revise 26-year-old insurance cap?

With regard to deposit guarantee insurance limit hike, Sitharaman said it may not be part of cooperative bank legislation but part of some other laws.

"We might want to increase the minimum amount of Rs 1 lakh (deposit cover). The government plans to bring this (legislation) during the winter session," she said.

Infographic: How the PMC Bank scam unfolded

Currently, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and credit Guarantee Corporation. Deposit insurance is static at Rs 1 lakh since 1993. As much as 90 per cent of the accounts had that much or less amount when this limit was raised to Rs 1 lakh.

(With PTI inputs)

By Aseem Thapliyal