NEW DELHI: To create confidence among depositors that their money is safe with commercial banks, Finance Minister Nirmala Sitharaman in her Budget speech proposed to hike the bank deposit insurance in scheduled commercial banks to Rs 5 lakh per depositor from the current Rs 1 lakh. The proposal, however, may impact portability of banks, said experts.
The long-overdue move comes only several incidents, the prominent being a fraud of Rs 4,355 crore unfolded at Punjab and Maharashtra Co-operative (PMC) Bank, created a sort of panic among investors. The FM, however, said that there is a robust mechanism in place to monitor the health of all scheduled commercial banks and all depositors money is absolutely safe in the country.
Experts welcomed the move and said it is a higher confidence-boosting measure. “The proposal to increase the deposit insurance coverage and assurance on the safety of depositor money in a scheduled commercial bank is a high confidence-boosting measure and should support the deposit accretion of banks,” said Karthik Srinivasan, SVP and group head, Financial Sector Ratings, ICRA.
Care Ratings in its Budget analysis said that the increase is beneficial to deposit holders and is generally in line with inflation as the limit was last increased in 1993. However, experts believe that the new announcement may impact the financial health of the banks as the increased cost will be borne by the banks.