New Delhi: The Union Cabinet, on Wednesday, passed the Deposit Insurance and Credit Guarantee Corporation (Amendment Bill) – a move that aims to protect the interest of bank depositors, Finance Minister Nirmala Sitharaman said.
Mrs Sitharaman said that the proposed bill will insure bank deposits up to Rs 5 lakh and the depositors of troubled banks would get back amounts below Rs 5 lakh within 90 days, even if a bank is put under moratorium by the Reserve Bank of India. It will insure bank deposits such as savings, FDs, current or recurring deposits. It also covers commercial, public, private sector banks & branches of foreign banks in India.
Addressing a media briefing after the cabinet meeting, Sitharaman said that the bill increases deposit insurance coverage and reduces the time taken for depositors to recover sums if a bank comes under financial stress.
“Each depositor’s deposit in a bank is insured for up to a maximum of Rs 5 lakh, for both principal and interest. Now in India with an increase in insurance amount from Rs 1 lakh to Rs 5 lakh is going to cover 98.3% of all deposit account,” Finance Minister said.
She further added that 50.98% of deposit value will be covered by the DICGC Act. The proposed law will also ensure that depositors of troubled banks get their money back in 90 days. “First 45 days will go for the bank in distress to collect all their accounts where claims will have to be made, which will be given to proposed DICGC,” the Finance Minister said. The DICGC will check the accounts handed over and hand over the money in approximately 90 days to the depositors,” the minister informed. Further, the Union Cabinet proposed the first amendment to the Limited Liability Partnership Act.
“As per the bill approved by cabinet, each depositor’s bank deposit is insured up to Rs 5 lakh in each bank for both principal and interest. Increase of insured amount from Rs 1 lakh to Rs 5 lakh will cover 98.3 percent of all deposit accounts and 50.9 percent of deposit value,” Sitharaman said.
Sitharaman said this was above the global average. As per her, only 80 per cent of all deposit accounts globally get covered under similar deposit insurance schemes, while only 20-30 per cent of the deposit value gets covered.
Last year, the government raised insurance cover on deposit five-folds to Rs 5 lakh to provide support to depositors of ailing lenders like Punjab and Maharashtra Co-operative (PMC) Bank. Following the collapse of PMC Bank, Yes Bank and Lakshmi Vilas Bank too came under stress, leading to restructuring by the regulator and the government.
The bill, which will amend to the DICGC Act, 1961 was proposed in the last Union Budget.
Once the Bill becomes law, it will provide immediate relief to thousands of depositors, who had their money parked in stressed lenders such as PMC Bank and other small cooperative banks.
As per the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and the liquidation process starts. DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.