The Union government enhanced the insurance protection for bank deposits from Rs 1 lakh to Rs 5 lakh, ensuring that account holders receive prompt refunds in the event of unforeseen circumstances such as closure or bankruptcy.
Even if the Reserve Bank of India imposes a moratorium, banks must now restore the money to the depositors (RBI). The Deposit Insurance and Credit Guarantee Corporation Act has been amended to require banks to restore money to depositors within 90 days.
The Deposit Protection and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, provides deposit insurance to depositors. Except for foreign government, interbank, and central and state government deposits, the system includes all forms of bank deposits — savings, fixed, and recurring. Since 1993, when it was raised to Rs 1 lakh from the prior maximum of Rs 30,000 established in 1980, the insured sum has remained unchanged.
Prior to the modifications, the deposit insurance legislation did not guarantee a schedule for deposit refunds, and account holders had to wait months or years for a moratorium-hit bank's liquidation and restructuring procedure to be completed.
Also read: The RBI has increased the insurance protection on bank deposits to Rs 5 lakh from today.
Depositors with more than Rs 5 lakh in their accounts, however, would not receive any legal protection as a result of the action.
After a string of bank failures in recent years, depositors have struggled to recover their cash, the decision to increase the insurance limit is expected to restore trust in the banking sector.
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