Institutions need separate deposit insurance cover: Sahakar Bharati

The Deposit Insurance and Credit Guarantee Corporation (DICGC) needs to carve out a separate deposit insurance limit for institutions to help them overcome the difficulty in placing deposits with multiple banks, according to Sahakar Bharati.

Institutional depositors such as educational institutions, charitable and religious trusts, co-operative credit and housing societies park their deposits with various banks to get the benefit of deposit insurance cover. However, management of funds can become onerous once their corpus starts growing.

Higher cover

Sahakar Bharati, the all-India body of co-operative institutions, wants the Finance Ministry to consider modifying DICGC’s deposit insurance scheme so that institutional depositors get a separate and higher deposit insurance cover of ₹25 lakh and management of funds becomes easier.

DICGC (a wholly-owned subsidiary of the Reserve Bank of India), with the approval of Government of India, had upped the limit of insurance cover for depositors in the insured banks five-fold to ₹5 lakh per depositor with effect from February 4, 2020.

Also read: Sahakar Bharati seeks Sec 80C benefit for term deposits of 5 years and above with UCBs

With the revised deposit insurance cover, the proportion of bank deposits (by amount) with insurance cover, rose to 50.9 per cent of assessable deposits as of March-end 2020 vis-a-vis 27.4 per cent without increase in the cover.

Satish Marathe, Founder-Member, Sahakar Bharati, and Director, Central Board, Reserve Bank of India, observed that if a co-operative credit society wants to deploy surplus funds of, say, ₹1 crore, then to get the benefit of deposit insurance cover it will have to park the monies in at least 20 banks.

He emphasised that if institutional depositors have a separate and higher deposit insurance limit of ₹25 lakh, the number of banks they will be required to park their deposits with will come down drastically, making fund management less cumbersome.

This demand assumes significance as the funds of institutional depositors are stuck in some of the urban co-operative banks, which have either been placed under RBI directions or are getting liquidated.

For example, in scam-hit Punjab and Maharashtra Co-operative (PMC) Bank, fixed deposits of institutional depositors such as the Reserve Bank Officers’ Co-operative Credit Society Ltd (₹105 crore) and the Reserve Bank Staff & Officers Co-operative Credit Society Ltd (₹86.50 crore) are stuck.

Given that about 49 per cent of the assessable deposits do not have insurance cover, Marathe felt that banks should be permitted to obtain additional deposit insurance cover on such deposits of individuals and institutions by payment of additional premium.

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