The government could consider raising deposit guarantee limit from existing 1 lakh, news agency IANS reported, citing Finance Minister Nirmala Sitharaman. Her comments come in the wake of crisis at Mumbai-based urban cooperative bank, PMC Bank. Customers of the crisis-ridden bank can now withdraw up to 40,000 according to the latest enhanced limit. It is to be noted that under the current bank deposit insurance scheme in case of an unlikely bank failure deposits up to 1 lakh is insured and paid back to the depositor.

This scheme insures all types of bank deposits including savings, fixed and recurring with an insured bank. The bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India. The agency does not directly charge any premium from bank depositors but banks pay a nominal premium for the cover.

This deposit guarantee can be released only if the bank gets closed. It cannot be released if the bank is a going concern. The Finance Minister also said that if the deposit guarantee limit from existing 1 lakh is raised, it will be through Parliament. A report from SBI also highlighted the need to revisit the current upper limit of deposit insurance.

Here are a few highlights of the current deposit insurance scheme on bank deposits:

The 1 lakh limit covers both principal and interest amount.

All deposits maintained by the depositor across all branches of the failed bank are clubbed. Or in other words, if a person keeps deposits in different branches of a bank, they are paid a maximum of up to Rs. 1 lakh only on the aggregate amount.

However, deposits maintained with different banks are not clubbed.

The deposit insurance scheme covers all banks operating in India including private sector, co-operative and even branches of foreign banks in India. There are some exemptions like deposits of foreign governments, deposits of central/state governments and inter-bank deposits.