The government is “actively considering” raising the deposit insurance limit beyond the current Rs 5 lakh, a top finance ministry official said on Monday. Days after the New India Co-operative Bank scam came to light, Department of Financial Services Secretary M Nagaraju announced that such a proposal is in the works.
“The point about increasing insurance… that is under active consideration. As and when the government approves, we will notify it,” he told reporters at a press conference in the presence of Finance Minister Nirmala Sitharaman.
He, however, declined to speak on the crisis at New India Co-operative Bank, saying the RBI is seized of the matter.
A deposit insurance claim gets triggered when a lender goes down, and over the years, the Deposit Insurance and Credit Guarantee Corporation (DICGC) has paid out such claims. The body collects premiums from banks for the cover it offers, and a majority of the claims have had to be done in case of cooperative lenders.
It can be noted that following the PMC Bank scam, the DICGC insured limit was raised to Rs 5 lakh from Rs 1 lakh in 2020.
Economic Affairs Secretary Ajay Seth said the cooperative banking sector is well regulated under the RBI’s watch and termed the overall health of the sector as strong.
A crisis at one entity should not lead anybody to cast doubts on the overall sector, he added, pointing out that it is the job of the regulator to take actions against errant entities.
As per reports, 90 per cent of New India Co-Operative Bank’s 1.3 lakh depositors will have their entire sums covered under the DICGC.
The scam at the bank was discovered during a physical inspection, which revealed that Rs 122 crore of cash shown in the books is missing.
Investigations revealed that the bank’s general manager for finance, Hitesh Mehta, had allegedly given a substantial part of the embezzled amount to a local builder.
