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RBI hikes Insurance cover on bank deposits to Rs 5 lakh from Rs 1 lakh 

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India’s central bank, the Reserve Bank of India (RBI) has increased the Insurance cover on bank deposits to Rs 5 lakh from Rs 1 lakh effective from February 4, 2020 with a view to giving protection to depositors.Key Points:

i.The cover is provided by a wholly owned subsidiary of the RBI, the Deposit Insurance and Credit Guarantee Corporation (DICGC).
The DICGC does not directly charge any premium from the depositor on this insurance. So Now Banks will pay a premium of 12 paise against 10 paise per Rs 100 deposit.

ii.This move comes after the Budget announcement by Finance Minister Nirmala Sitharaman who made an important provision in the Budget 2020-2021 on the protection of bank deposits of common people.

iii.The confidence of investors has shrunk since the Punjab and Maharashtra Co-operative Bank (PMC) scam surfaced, in which millions of customers have been affected.

iv.It is believed that a guarantee of Rs 5 lakh on the deposit will help to re-establish investor confidence. Now bank fails, then it gets an insurance cover of Rs 5 lakh from DICGC.

About Deposit insurance:
All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC .
It remains the same at Rs 1 lakh since 1993.
The committee on Financial Sector Reforms headed by Former RBI governor Raghuram Rajan in 2009 had recommended to strengthen the capacity of DICGC to make a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.

About Deposit Insurance and Credit Guarantee Corporation (DICGC):
Formed
– 1961
Headquarters– Mumbai, Maharashtra

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, Mahesh Kumar Jain, Michael Debabrata Patra)