Govt May Soon Raise Bank Deposit Insurance Cover To ₹7.5 Lakh From ₹5 Lakh

Bank deposits of up to ₹7.5 lakh may soon be protected against bank failures, up from the current cover of ₹5 lakh. The finance ministry has sent a proposal to the Prime Minister's Office for consideration, and a government official familiar with the development said the enhanced limit has cleared internal assessments and an announcement is expected soon.

If approved, this would be the first revision to the deposit insurance limit since February 2020, when the government raised the cover five-fold from ₹1 lakh to ₹5 lakh. That increase had followed a series of banking crises involving Punjab and Maharashtra Co-operative Bank and Yes Bank.

Why This Is Being Considered Now

The proposal comes at a time when concerns around the health of smaller co-operative lenders have grown. The Reserve Bank of India (RBI) has taken action against several such banks in recent months, cancelling the licences of Sarvodaya Co-operative Bank in May and Karwar Urban Co-operative Bank in July 2025. Both cancellations triggered payouts by the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the RBI.

A widening gap between deposit growth and the existing insurance threshold has also added to the case for an upward revision. According to the Mint report, the move is intended to strengthen depositor confidence and support financial stability in the banking system.

How The System Works

The deposit insurance scheme run by the DICGC is mandatory for all RBI-licensed banks, covering both commercial and co-operative lenders. As of March 31, 2026, there were 1,950 registered insured banks in India, of which 124 were commercial banks and the remaining 1,826 were co-operative banks of various types.

In FY26, total claims settled by the DICGC came to ₹1,988 crore, all related to urban co-operative banks that were either liquidated or placed under directions. The deposit insurance fund stood at ₹2,61,823 crore as of March 31, 2026, up 14.4% from the previous year.

New Premium Structure Also In The Works

Alongside the proposed limit increase, a new risk-based premium framework for deposit insurance was released by the RBI in February. Under this, banks will pay differential premiums based on their risk scores rather than the current flat rate of 12 paise per ₹100 of assessable deposits. Stronger banks with better risk scores and clean track records will pay less, while weaker banks will pay more.

According to an Icra analysis, banks accounting for around 80% of the sector's deposit base are likely to benefit from lower premium rates. The overall banking sector is expected to see a return on assets improvement of around 3 basis points from the new framework.

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However, the expansion of the insured deposit base that would follow a limit increase could raise premium payouts, potentially impacting banking sector profits by ₹2,000 to ₹12,000 crore annually and moderating return on assets by 1 to 4 basis points.

Sources:

Mint

Moneycontrol