Money & Banking

Raise the deposit insurance limits for individuals to ₹5 lakh: Sahakar Bharati

Our Bureau Mumbai | Updated on November 13, 2019

Sahakar Bharati also recommends to increase the limits for institutions to ₹25 lakh

Deposit insurance limits for individuals and institutions should be raised to ₹5 lakh and ₹25 lakh, respectively, against the present limit of ₹1 lakh to protect their interests in the backdrop of the massive fraud at Punjab and Maharashtra Co-operative (PMC) Bank, according to Sahakar Bharati.

Many depositors had saved over ₹1 lakh with PMC Bank as it offered attractive interest rates on fixed deposits.

But with the fraud in the form of irregular loans extended to real estate developer HDIL coming to light, the Reserve Bank of India has imposed Directions on the Bank for six months with effect from the close of its business on September 23, 2019, capping deposit withdrawals at ₹50,000 of the total balance in depositors' accounts.

Sahakar Bharati, which is an all-India organisation for promoting the co-operative movement in the country, in a communication to Union Finance Minister Nirmala Sitharaman has recommended that besides enhancing the deposit insurance limits, all Banks be permitted to obtain additional deposit insurance limits for their depositors -- individuals and institutions -- by payment of additional premium.

The current deposit insurance limit was raised from ₹30,000 to ₹1 lakh in 1993 and this calls for immediate review and enhancement of the deposit insurance cover. “Deposit insurance cover should be substantially raised immediately to protect the interests of the depositors. The Deposit Insurance and Credit Guarantee Corporation (DICGC) should create a separate Reserve to protect the interests of depositors of Banks that fail on account of frauds.

“With notice of minimum three years, DICGC should start charging risk based premium to all Banks, irrespective of their nature of ownership. This will enable the depositors to pick and choose Bank/s of their choice for placement of deposits,” said Satish Marathe, Founder-Member, Sahakar Bharati, and Director, Reserve Bank of India.

Considering the profile of the banking sector, Sahakar Bharati estimated that 75 per cent of the banks (public sector banks, systematically important banks and most foreign banks) are never likely to fail. Hence, even if, the deposit insurance limits are raised, it strongly recommended that there is no case for enhancing the present deposit insurance premium rate.

Published on November 13, 2019

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