The government is considering raising the insurance cover for bank deposits to anywhere between Rs 2 lakh and Rs 3 lakh from the current level of Rs 1 lakh under a modified Financial Resolution and Deposit Insurance (FRDI) law, a source told FE. The finance ministry is also debating whether the minimum insured amount can be allowed to be withdrawn by the depositors of a troubled bank even when it is continuing operations as a going concern, said the source. Under the extant rules, depositors are entitled to the insured amount of Rs 1 lakh only when the bank is liquidated, he added.
The latest move comes at a time when fraud-hit Punjab and Maharashtra Co-operative Bank is facing a grave crisis and customers have been demanding their entire money back, apart from lifting the daily withdrawal curbs.
“The deposit insurance cover could be at least doubled. There is also a thumb rule in some countries that such a cover should be at least the double of the per capita GDP. This possibility is also being looked at. So the cover can be hiked up to Rs 3 lakh as well. A final decision will be made soon,” said the source. The country’s per capita GDP was Rs 1,42,719 in FY19.
After a meeting with chiefs of state-run banks on October 14, finance minister Nirmala Sitharaman had said the government would soon introduce…