Mumbai: The Reserve Bank of India (RBI) does not see any major impact on the balance-sheets of banks due to the five-fold hike in deposit insurance to Rs 5,00,000.
Following the failure of a number of cooperative banks, with the city-based Punjab & Maharashtra Cooperative (PMC) Bank being the latest and the largest last year, the budget allowed the Deposit Insurance and Credit Guarantee Corporation (DICGC) to raise deposit insurance coverage to Rs 5,00,000 from Rs 1,00,000.
“The premium is something, which we consider, will increase from 10 paise to 12 paisa per Rs 100 for the time being. So, the impact on banks’ balance sheets is not likely to be much,” RBI Deputy Governor BP Kanungo told reporters during the post-policy presser.
The hike in deposit insurance coverage has been a long pending demand from bank depositors and it recently came to fore after the crisis at Punjab & Maharashtra Cooperative (PMC) Bank. It can be noted that in 2019 alone more than 30 cooperative banks went belly up in Maharashtra alone.
The DICGC, a wholly-owned subsidiary of the Reserve Bank, provides insurance cover on bank deposits. The corporation insured each bank depositor up to a maximum of Rs 1,00,000 for both principal and interest amount held by them as on the date of liquidation/cancellation of a bank’s licence or the date on which the scheme of amalgamation/merger comes into force.