Centre Hopes To Raise Deposit Insurance Limit Above Rs.5 Lakh
Finance ministry official M Nagaraju remarked that the government would notify when that happens
Following the New India Co-operative Bank scam, wherein due to embezzlement, a Rs.122 crore shortfall was revealed, the Centre is considering increasing the deposit insurance limit beyond Rs.5 lakh.
M Nagaraju, Secretary, Department of Financial Services in the Ministry of Finance said such a proposal was anticipated.
At a press conference, in the presence of Finance Minister Nirmala Sitharaman, while Nagaraju evaded speaking on the crisis at the cooperative bank, he stated, "The point about increasing insurance is under active consideration. As and when the government approves, we will notify.”
Meanwhile, the Reserve Bank of India (RBI) is monitoring the situation, emphasizing the cooperative banking sector's overall strength amidst isolated incidents.
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 coverage it offers. Most such cooperative lenders’ claims have been handled.
In 2020, following the PMC Bank scam, the DICGC insured limit was raised to Rs.5 lakh from Rs 1 lakh.
Terming the overall health of the sector as strong, Economic Affairs Secretary Ajay Seth mentioned that the cooperative banking sector was well-regulated under the RBI.
He added that a crisis at one entity should not lead anyone to cast aspersions on the overall sector. It was the job of the banking regulator to act against errant entities.
As the situation persists, 90 percent of New India Co-Operative Bank's 1.3 lakh depositors will have their entire sums covered under the DICGC.
The scam was discovered during the inspection, revealing that Rs.122 crore of cash shown in the books was missing. It was found that the bank's general manager for finance, Hitesh Mehta, allegedly gave a substantial part of the embezzled amount to a local builder.