Asserting that Government’s recent move to enhance deposit insurance coverage to ₹ 5 lakhs would solve for hardships faced by the poor and middle class depositors’, Prime Minister Narendra Modi on Sunday said that as much as ₹76-lakh crore of depositors’ wealth are now secured with the latest move covering 98.1 per cent of the total accounts in banking system.

Addressing a programme in the capital titled “Depositors First : Guaranteed Time Bound Deposit Insurance Payment upto ₹5 lakh”, Modi highlighted that his government had also changed the law to provide for depositors to get back their money in a time bound manner in case banks go down under.

“Earlier, there was no time limit for getting one’s own money back and poor and middle class toiled for it, now our government has made it mandatory that within 90 days , that is 3 months, depositors will get their money”, Modi said.

DICGC Act amendment

Under the recently amended Depositors Insurance law, each depositor in a bank is insured upto a maximum of ₹5 lakh for both principal and interest amount. Earlier, the depositor insurance limit was ₹ 1 lakh. Also, earlier the liability of DICGC kicked in only when the order of liquidation was passed against a bank.

Now, after the recent amendments to DICGC Act, the DICGC is required to pay the depositors the insured amount (of upto ₹5 lakh) within 90 days from the date the any order or direction or scheme is passed such that it prohibits the depositors of the insured bank from accessing their deposits.

Modi also said that he had while being a chief minister made repeated requests to the Central government to increase bank deposit insurance cover to ₹5 lakh from ₹1 lakh, but to no avail. “So people sent me to do it and I have done it”, Modi said.

Modi said that after the latest increase in insurance coverage, over 1 lakh depositors have got about ₹1,300 crore of their money that was stuck with stressed banks.

He also said that about three lakh more such account holders will get their deposits with the banks that are under similar stressed situation.

It maybe recalled that the coverage under the Deposit Insurance and Credit Guarantee Corporation of India ( DICGC) was last raised in 1993, from ₹30,000 to ₹1 lakh.

“We have understood the challenges faced by the poor people and therefore increased the depositors’ insurance amount. The increased amount is a sense of security to them, in case any bank faces a financial trouble”, Modi said.

Small public sector banks

Prime Minister said that over the years, many small public sector banks have been empowered in every way by merging them with big banks. This has improved the banks capacity, capability and transparency in their functioning. When RBI monitors cooperative banks, it will also increase the confidence of General depositor towards them, he said.

Speaking on the occasion, Finance Minister Nirmala Sitharaman said that Modi-led government had shown commitment to depositors and the interest of the middle class were always kept in mind. “Government has been sensitive to the interest of the middle class depositors. We also therefore did not allow the legal changes on depositors insurance to only have prospective effect as always the case with any law. We did not deal with it in prospective way”, she added.

She highlighted that the Public sector banks health are so improved that they are able to raise money on their own.

Deposit insurance

RBI Governor Shaktikanta Das said this (increase in deposit insurance coverage to ₹5 lakh) is an important milestone in the evolution of protection of depositors in the country. He highlighted that ‘Depositors First’ is the guiding overarching philosophy of Reserve Bank of India in all its actions and all its policies so far as banks are concerned.

“Our focus is to protect the resilience of the banks and keep in mind the protection of depositors uppermost in our mind”, he said.

Das also said that DICGC has now automated the claims receiving and settlement process and technology has been leveraged and the entire process has been automated. “The first set of banks where 90 days period got over on November 29, all claims were processed thanks to the cooperation extended by public sector banks”, he said.

Payments of deposit insurance should be seen as measure of last resort, he added. Das also said that RBI will soon be taking action on the recommendations of the committee on urban cooperative banks. “ So far as supervision is concerned, we are no more going by symptoms. We are going by root cause analysis. We are looking at business models of banks to see if they are viable without of course interfering in the commercial flexibility that these banks must have for their success", Das said.

Das also advised depositors to be careful while chasing high returns from deposits, noting that high returns and high rates are usually associated with high risks. " Iam not generalising. There are institutions offering high interest rates and they are viable, but depositors must be careful", he said,

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