In light of the recent PMC Bank scam, Finance minister Nirmala Sitharaman has proposed to increase the deposit insurance coverage in banking sector to Rs 5 lakh from current Rs 1 lakh. This means that in case of bank failure or liquidation, a depositor will get upto Rs 5 lakh as opposed to previous Rs 1 lakh, before the bank pays other parties.
Prior to the Budget 2020, there were expectations that the insurance coverage would be increased to Rs 2 lakh. But the FM has outsmarted the expectations.
She stressed that depositors' money was safe in scheduled banks. "Clean, loyal and robust financial sector is critical to the economy. The government has infused Rs 3,50,000 crores to revive public sector banks. A few will be allowed to approach capital markets to raise money"
The PMC Bank were put under restrictions by the RBI, after a multi-crore scam came to light following which the deposit withdrawal was initially capped at Rs 1,000, causing panic and distress among depositors.
The withdrawal limit was increased gradually to Rs 50,000. This had caused much concerns for the depositors.
The fraud at PMC Bank came to light in September last year after the Reserve Bank of India discovered that the bank had allegedly created fictitious accounts to hide over Rs 6,700 crore in loans extended to the almost-bankrupt Housing Development and Infrastructure Limited (HDIL).
