In a bid to guarantee well timed assist to depositors of careworn banks, the federal government may convey amendment to DICGC Act in the monsoon session with the target to present account holders simple and time-bound entry to funds to the extent of the deposit insurance coverage cowl.
Last yr, the federal government raised insurance coverage cowl on deposit five-folds to Rs 5 lakh with a view to present assist 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 got here below stress main to restructuring by the regulator and the federal government.
The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 is the price range announcement made by the Finance Minister and the Bill is sort of prepared, sources stated.
It is predicted that the Bill shall be tabled in the upcoming monsoon session after being vetted by the Union Cabinet, sources added.
Once the Bill turns into the legislation, it’ll present fast aid to 1000’s of depositors who had their cash parked in careworn lenders equivalent to PMC Bank and different small cooperative banks.
As per the present provisions, the deposit insurance coverage of up to Rs 5 lakh comes into play when the licence of a financial institution is cancelled and liquidation course of begins. DICGC, a wholly-owned subsidiary of the Reserve Bank of India, gives insurance coverage cowl on financial institution deposits.
Finance Minister Nirmala Sitharaman in the Budget speech in February stated the federal government had authorised a rise in the Deposit Insurance cowl from Rs 1 lakh to Rs 5 lakh for financial institution clients final yr.
“I shall be moving amendments to the DICGC Act, 1961 in this session itself to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover. This would help depositors of banks that are currently under stress,” she had stated.
It couldn’t be offered in the Budget session due to the curtailment of the final session following the unfold of second wave of COVID-19 pandemic.
It is to be famous that the improved deposit insurance coverage cowl of Rs 5 lakh is efficient from February 4, 2020. The improve was accomplished after a niche of 27 years because it was static since 1993. The cowl is offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.
With elevated insurance coverage cowl, the banks are paying the next premium of 12 paise towards 10 paise per Rs 100 deposited with none further burden on account holders.
The deposit insurance coverage scheme covers all banks working in India, together with personal sector, cooperative and even branches of overseas banks. There are some exemptions equivalent to deposits of overseas governments, deposits of central and state governments, and inter-bank deposits.
It may be recalled that manner again in 2009, the Raghuram Rajan committee on monetary sector reforms had really useful strengthening the capability of the DICGC, a extra express system of immediate, corrective motion, and making deposit insurance coverage premia extra risk-based.