Depositors of a bank which is temporarily unable to fulfil its obligations will get easy and time-bound access to their deposits to the extent of the deposit insurance cover, going by the amendments that the government is planning to make to the Deposit Insurance and Credit Guarantee Corporation Act (DICGC Act), 1961.
This would help depositors of banks that are currently under stress, said Finance Minister Nirmala Sitharaman in her Budget speech.
She observed that the government will be moving amendments to the DICGC Act, 1961 in this current (Budget) Session to streamline the provisions.
This move comes in the backdrop of depositors of at least 50 urban co-operative banks (UCBs), which are currently under the Directions of the Reserve Bank of India (RBI), facing untold misery for many years due to the cap on deposit withdrawal. DICGC had raised the limit of insurance cover for depositors in insured banks to ₹5 lakh from the earlier level of ₹1 lakh with effect from February 4, 2020, with the approval of the government.
“What the FM is trying to say is that before an UCB goes into liquidation or gets into a reconstruction mode, depositors can get up to the insured amount of ₹5 lakh....Already PMC Bank depositors with deposits up to ₹1 lakh have got their money.
“Currently, the bank, which has been under RBI Directions since September 2019, has about 1.40 lakh depositors. Now, if the DICGC agrees to give up to the insured amount, the number of depositors with deposits with over this amount will only be about 40,000,” said Chander Purswani, President, PMC Depositors Forum.
So, this means they are trying to save 95 per cent of the depositors, leaving the remaining depositors hanging in the air, he added.
Purswani observed that “this is a worrying factor. Now, what about the depositors having deposits over ₹5 lakh? We are fighting for our entire deposits”.
According to the RBI, the financial soundness of the UCB sector has been of concern over the last few years.
Since April 1, 2015 (up to December 11, 2020), 52 UCBs have been placed under All Inclusive Directions by the Reserve Bank, according to the central bank’s latest ‘Report on Trend and Progress of Banking in India’.
Of the total claims settled by the Deposit Insurance and Credit Guarantee Corporation (DICGC) since inception, around 94.3 per cent of claims pertained to co-operative banks that were liquidated, amalgamated, or restructured.
With effect from April 1, 2020, the premium was increased by the DICGC from 10 paise to 12 paise per annum per ₹100 of assessable deposits, with the approval of the Reserve Bank, to mitigate the impact of the hike in insurance cover on the Deposit Insurance Fund (DIF) in case of failure of banks.