Insurance of bank balance means the deposits kept in the bank is insured to save the depositors’ money in case the bank goes bankrupt. In India, this is done through the ‘Deposit Insurance and Credit Guarantee Corporation (DICGC)’ it insures deposits up to the certain limit that is now ₹ 500000 per depositor per bank.

Merits:
1. Deposit Safety: It offers safety for the depositors, especially the one who deposits a small amount of money in their account in case the bank goes under.
2. Confidence in banking: Deposit insurance instills more confidence within people, especially in depositing their money in the banking institutions.
3. Financial Security: This safe depositor ensures that there are no bank runs and is always supportive of the system in place within the banking industry.

Demerits:
1. Moral Hazard: It can be said that deposit insurance does affect the risk-taking behavior of the banking institutions to the extent that they can rely on insurance to face loss.
2. Insurance protecting one’s money in the bank is not always great for big corporations or individuals carrying large sums of money. Meaning, when something wrong occurs, they may not be able to recover their entire amount.
3. When the cost of insurance rises, banks can charge a higher price for the money they lend to you. You then get a smaller amount in interest when you borrow money or when you put your money in the bank because the bank is trying to cover up the increased cost.

End
In addition, to bolster the strength of bank balance insurance, the coverage could be broadened in tandem with the stringent risk criteria so as not to succumb to moral hazard. Other benefits that are related and pertinent to this include improved depositors’ literacy regarding finances because they now learn about coverage limits and therefore can make informed banking choices; hence, promoting financial stability.