Government Plans to Raise Bank Deposit Insurance Limit to Protect Savers

In a move that could bring major relief to depositors holding savings and term deposits, the Reserve Bank of India (RBI) is reportedly considering increasing the insurance limit on bank deposits, which is currently capped at ₹5 lakh. This insurance is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI.

A decision on raising this insurance cap is expected soon, as per a Business Standard report.

How Deposit Insurance Works

The DICGC offers insurance coverage on various types of deposits—savings accounts, fixed deposits, recurring deposits, and even current accounts. The current maximum insurance amount is ₹5 lakh, which includes both the principal and interest. This applies per customer per bank.

If you have accounts in different branches of the same bank, the total deposits are combined for calculating the ₹5 lakh limit. However, deposits in separate banks or held in different ownership capacities (e.g., joint accounts) are insured individually.

Why Deposit Insurance Is So Important

Think about this: You’ve saved all your life and placed your earnings in a bank. You’re retired now, and this is your only source of income. Then one day, you find out that the bank has gone bankrupt. The panic and stress are unimaginable.

In such situations, the only hope for depositors is the DICGC’s insurance. But right now, that insurance is limited to ₹5 lakh—an amount that many believe is too small in today’s financial landscape.

What Is DICGC and Its Role?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) was established to ensure that if a bank goes bankrupt, depositors can still recover a portion of their money. Currently, that portion is capped at ₹5 lakh. The DICGC is crucial for maintaining trust in the banking system.

In a recent Budget Session of Parliament, Finance Minister Nirmala Sitharaman responded to a question regarding this matter. She said that any decision to increase the insurance limit would depend on the financial health of the DICGC and the overall condition of the banking sector. One MP had even asked whether the limit could be raised to ₹50 lakh.

Why the ₹5 Lakh Limit Needs an Update

1. Lessons from Past Bank Crises

• PMC Bank Crisis (2019)

When RBI placed restrictions on Punjab & Maharashtra Co-operative Bank, many customers had large deposits stuck. Despite years of saving, they only received ₹5 lakh in insurance.

• Yes Bank Case

Although Yes Bank’s crisis was resolved by government and RBI intervention, it showed how dangerous things could get if timely action wasn’t taken.

• Failures of Small Cooperative Banks

There have been multiple incidents where small cooperative banks went bankrupt, and depositors had to wait for years to recover their money—even then, they often only received ₹5 lakh.

2. ₹5 Lakh Is Too Low in Today’s Economy

Due to inflation and higher living costs, middle-class families often hold fixed deposits worth more than ₹10 lakh. A ₹5 lakh insurance cap doesn’t provide real protection anymore. Instead, it creates fear and uncertainty.

3. Extra Protection for the Elderly and Rural Customers

Older people and residents of small towns are especially reliant on banks to store their lifetime savings. They have no other income source, so it’s critical that their money is safeguarded.

4. Improved Public Confidence

Increasing the deposit insurance limit will boost public trust in the banking system. When people know their money is safe, they are more likely to keep it in banks and not panic during uncertain times.

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What Happens If the Limit Is Raised to ₹10–15 Lakh?

If the deposit insurance limit is raised:

• Most middle-class and rural depositors would be fully protected.
• Fear around depositing money in cooperative banks would decrease.
• Banks may have to pay more in insurance premiums to DICGC, but this would enhance overall financial security for customers.

Conclusion: A Much-Needed Move to Strengthen Bank Safety

Raising the deposit insurance limit is not just a technical decision—it’s a vital step for protecting millions of people’s savings. The examples of PMC Bank, Yes Bank, and several cooperative banks show that the current ₹5 lakh coverage is simply not enough.

By increasing the limit, the government and the RBI would be providing a stronger safety net for savers. It would send a clear message that customer protection is a top priority, helping rebuild confidence in the financial system. For the elderly, small-town residents, and middle-class families, this move could be a turning point in securing their hard-earned savings.

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