Rebuilding Depositor's Faith: Budget 2020 Announces Increase In Insurance Cover To Rs 5 Lakh From 1 Lakh

Union Finance Minister Nirmala Sitharaman in her second Union Budget on February 1 focused on the safety of depositor's money and increasing transparency in the banking sector.

Increased Deposit Insurance Coverage

FM Nirmala Sitharaman on Saturday said that the government has permitted the Deposit Insurance and Credit Guarantee Corporation (DICGC) to increase deposit insurance coverage by five times to Rs 5 lakh. At present, the DICGC provides Rs 1 lakh insurance to a depositor regardless of deposit in case the lender fails or liquidated.

This decision comes after the crisis at Punjab and Maharashtra Cooperative Bank that imposed restrictions on deposit withdrawals.

"Robust mechanism is in place to monitor and ensure the health of all scheduled commercial banks and depositors' money is absolutely safe," FM said.

Public Sector Banks

The finance and banking sector has been caught amid a credit crunch and needs easing credit growth. A recent ICRA report forecasted the bank credit growth between 6.5 and 7 per cent this financial year, lowest in over five and a half decades.

FM Sitharaman said that government has infused Rs 3.5 crore capital into public sector banks to help them maintain regulatory capital requirement. In the last Budget, the government had infused Rs 70,000 crore.

Presenting the Modi 2.0 government's second budget in Parliament, Sitharaman said that financial inclusion is the key, and a clean, reliable and robust financial sector is critical for a robust economy.

Sale Of Govt's Stake In IDBI

The Finance Minister announced that the government would sell its entire stake in the Industrial Development Bank of India (IDBI) bank to private players.

The government holds around a 46.5 per cent stake in IDBI Bank. In September, Life Insurance Corporation (LIC) of India and the government together injected Rs 9,300 crore as equity capital into the bank.

Recently, the Parliament had approved Rs 9,300 crore capital infusion in IDBI Bank.

FM Sitharaman also announced the government's plans to sell a partial stake in LIC through IPO or an initial public offer.

Other Major Reforms

Sitharaman on Saturday also mentioned the government plans to amend Banking Regulation Act, 1949 to strengthen the co-operative banking sector. The Banking Regulation Act is a legislation that regulates all banking firms in India.

Sitharaman said that major reforms will be introduced for recruitment into non-gazetted posts in government and state-owned banks. She proposed the setting up of a National Recruitment Agency for conducting common online eligibility tests for recruitment to these posts.

Also, Read Budget 2020: FM Nirmala Sitharaman Is Back With Red 'Bahi Khata'