The government is actively considering an increase in the deposit insurance limit beyond the current Rs 5 lakh, said M Nagaraju, Secretary at the Department of Financial Services, on Monday.
Responding to a query about the crisis at New India Cooperative Bank, Nagaraju stated, “The government is actively looking into this issue. Once a decision is made, we will notify it.” He confirmed that raising the deposit insurance limit was under serious consideration.
The deposit insurance scheme, introduced in India in 1962, ensures that eligible depositors are compensated up to a certain limit in case of bank failures. India became the second country globally to implement such a scheme, following the United States, which introduced it in 1933. The need for depositor protection has been highlighted during banking crises and bank failures worldwide.
In 2020, the Deposit Insurance and Credit Guarantee Corporation (DICGC) raised the coverage limit from Rs 1 lakh to Rs 5 lakh, providing greater security to depositors. The secretary refrained from commenting on the situation at New India Cooperative Bank, stating that the Reserve Bank of India (RBI) is addressing the matter.
When asked about the status of the Mumbai-based New India Cooperative Bank, Nagaraju said, “The RBI is handling the issue, and we will not comment further.”
New India Cooperative Bank’s depositors are entitled to insurance claims for amounts up to Rs 5 lakh, after verification by DICGC. The bank’s customers have been urged to reach out to bank officials for further details, and additional information is available on the DICGC website.
On February 14, the Reserve Bank of India (RBI) took action against New India Cooperative Bank, superseding its Board of Directors for a period of 12 months due to concerns over poor governance. The RBI also imposed several restrictions on the bank, including halting loan and deposit activities without prior approval.
Following the restrictions, many concerned customers gathered outside the bank’s branches across Mumbai, hoping to withdraw their savings. However, bank officials have reassured customers that they will have access to their lockers.
On February 13, the RBI issued additional directives, prohibiting New India Cooperative Bank from making new loans or accepting new deposits. The bank was also restricted from making payments or transferring assets without RBI approval. Despite these limitations, depositors are allowed to offset loans against their deposits in accordance with RBI conditions.
Founded over four decades ago, New India Cooperative Bank operates 30 branches across Mumbai, Thane, Surat, and Pune. It was granted “scheduled bank” status in 1990 and became a multi-state bank in 1999.