If a bank goes bankrupt, you can now receive more than 5 lakhs; know what the RBI is planning.

In this era of scams and bank collapses the question has become big whether your life's earnings are safe in the bank. In India, crores of people deposit their hard-earned money in banks in the form of savings and fixed deposits.

But what if that bank suddenly goes bankrupt? In such a situation, how safe is your deposit? The answer to this question today is only up to 5 lakhs. However, now the government and the Reserve Bank of India (RBI) are considering increasing this limit.

What is deposit insurance and how does it work?

Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI, provides insurance on deposits made in all commercial and cooperative banks of the country. This means that if a bank goes bankrupt, the customers depositing in that bank get a maximum insurance amount of up to Rs 5 lakh (principal + interest).

This limit is per bank for an individual, even if your amount is in different branches of the bank. But if your amount is in different banks, then insurance is applicable separately for each bank.

Why can the limit of deposit insurance be increased?

According to a Business Standard report, RBI is now considering increasing this insurance limit above Rs 5 lakh. A decision can be taken on this soon. Earlier in the budget session, Finance Minister Nirmala Sitharaman had also said that the decision to increase the insurance limit will be taken after looking at the current situation of DICGC and the banking system. A member in Parliament had also proposed to increase it to Rs 50 lakh.

Why did the recent bank crises raise this question?

PMC Bank case (2019)

When RBI imposed restrictions on Punjab and Maharashtra Cooperative Bank (PMC), thousands of account holders got into trouble. Some people had deposits in lakhs, but they got insurance protection of only up to Rs 5 lakh.

Yes Bank crisis

Although RBI and the government together took over Yes Bank, if this effort had not been successful, the capital of lakhs of account holders could have been in danger.

The plight of cooperative banks

Incidents of closure of many small banks like Lakshmi Cooperative Bank came to light, where account holders had to wait for years to get their deposits.

Why is it necessary to increase the insurance limit?

In this era of inflation, Rs 5 lakh is not enough. Today, the fixed deposit of a normal middle class family is Rs 10 lakh or more. The limit of Rs 5 lakh gives neither comfort nor security. The elderly and villagers need more protection. People of villages and small towns, especially the elderly, are completely dependent on banks. For them, the amount deposited is their lifelong capital. Apart from this, this will strengthen the trust of customers. If the government increases the limit of deposit insurance, then it will further strengthen the trust of common people in the banking system.