New Delhi: In an effort to give protection to depositors, the Reserve Bank of India (RBI) on Tuesday evening said in a statement that the insurance cover on bank deposits has been increased to Rs 5 lakh from Rs 1 lakh. The order from the RBI will come into effect from Tuesday itself.Also Read - Taxpayer Opting For New Tax Regime to Forego Deductions on PF, Tuition Fee, Insurance

Provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI said the move has been taken with a view to providing protection to depositors. Also Read - Want to Save Income Tax by Investing in Life Insurance Policies? Know How to do it Here

The development comes after Union Finance Minister Nirmala Sitharaman had on Saturday during the Union Budget 2020 presentation made the announcement regarding increasing insurance cover to Rs 5 lakh. Also Read - Millennials prefer life insurance over other fin assets: Study

Finance Secretary Rajiv Kumar earlier in the day had said that the Department of Financial Services has given approval for raising the deposit insurance cover from Rs 1 lakh to Rs 5 lakh.

The move from the RBI is seen to boost the confidence of people in the banking system which was disturbed after scam was unfolded last year in PMC Bank affecting lakhs of customers.

As per updates, with the increase in the insurance cover, the banks will now have to pay a premium of 12 paise against 10 paise per Rs 100 deposited.

The RBI stated that the deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. However, the RBI stated that there are some exemptions such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.