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The Union Cabinet on Wednesday approved the Deposit Insurance and Credit Guarantee Corporation Bill, 2021 that proposes to provide relief to small depositors by providing guarantees on their life savings.

According to Finance Minister Nirmala Sitharaman, the bill will increase insurance amount on each depositor's bank deposit to Rs 5 lakh in both principal and interest.

The increase in insured amount from Rs 1 lakh to Rs 5 lakh will cover 98.3 per cent of all deposit accounts and 50.9 per cent of deposit value. "This is higher than what cover is provided internationally, that is about 80 per cent of deposit accounts and 20-30 per cent of deposit value," she said.

"We have approved the 'Deposit Insurance Credit Guarantee Corporation', which was created in case people faced difficulties after @RBI imposes moratoriums on banks," Finance Minister said.

The amount guaranteed under the Act will be available to depositors of all banks and financial institutions including those sectors where the bank has gone into moratorium.

Also, the new bill will provide a time-bound process to clear the insured deposit amount. This will have to be cleared within 90 days, irrespective whether the bank is undergoing a resolution or going in for liquidation.

Various definitions would also be changed under the new bill to cover a larger section of depositors under the deposit insurance programme.

Sitharaman said that premium charged for giving this cover is currently 10 paisa for every Rs 100 of deposits. This is being raised to 12 paisa now and can be changed further up but with concurrence of RBI and the Finance Ministry within a limit.