The insured amount of Rs 5 lakh will cover 98.3% of all deposit accounts and 50.9% of the deposit value
The Union Cabinet on Wednesday gave its approval to the Deposit Insurance and Credit Guarantee Corporation Bill 2021 under which depositors of banks under the moratorium will be able to withdraw the insurance money of up to Rs 5 lakh within 90 days of RBI granting the moratorium.
The decision would cover all commercial banks, branches of foreign banks operating in India, and those banks which are at present under moratorium.
In a press conference after the Cabinet decision, Finance Minister Nirmala Sitharaman said the Deposit Insurance and Credit Guarantee Corporation was created in case people faced difficulties after RBI imposes moratoriums on banks.
“The Union Cabinet has decided that depositors will be able to withdraw up to Rs 5 lakh of their money within 90 days of moratorium by RBI. The corporation insures all bank deposits such as savings, fixed or current deposits and it covers all commercial banks and foreign banks,” she said.
As per rules, each depositor's bank deposit is insured up to Rs 5 lakh in each bank for both principal and interest. This amount was earlier Rs 1 lakh but was increased to Rs 5 lakh last year in February.
Sitharaman said the increase of the insured amount from Rs 1 lakh to Rs 5 lakh will cover 98.3 per cent of all deposit accounts and 50.9 per cent of the deposit value.
“Globally, deposit insurance coverage is only 80 per cent of all deposit accounts, covering only 20 per cent to 30 per cent of deposit value,” she said.
The Finance Minister added that normally it takes 8-10 years after complete liquidation to get money under insurance but now, even if there is a moratorium, the process will definitely be completed within 90 days giving relief to depositors.
Rachit Chawla, CEO and Founder of Finway FSC, said the move addressed a long-standing concern of the depositors of distressed banks.
“This amendment paves the way for increasing the insurance coverage on deposits and significantly shortens the time frame during which depositors have to wait for recovering their funds if the bank enters troubled waters. The amendment will alleviate a significant amount of stress among depositors. It restores our faith in the financial framework of the country,” he added.