On July 28, the union cabinet cleared the Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021, which allows customers of failed or stressed banks that are placed under a moratorium to get deposits upto ₹5 lakh back within 90 days.
The proposed legislation provides insurance to all bank deposits and covers all commercial banks including foreign bank branches in India, said finance minister Nirmala Sitharaman.
“Accessing depositors money has been an issue of when it will be allowed and under what conditionalities. Normally, it takes about 8-10 years, after the complete liquidation of the bank. Now, what we are saying is even if there’s a moratorium, this (90-day) measure will set in.”
“The stressed bank is expected to collate all information regarding the number of claimants and claim amount and inform DICGC about it within the first 45 days. Within the next 45 days, DICGC is mandated to process the claim and make payment to each eligible depositor,” added Sitharaman.
The DICGC Bill, 2021, will insure savings deposits, fixed deposits, current and recurring deposits. The minister further said, “Each depositor’s balance of ₹5 lakh is guaranteed for both principal and interest.” The amendment is expected to cover around 98.3 percent of the total number of accounts and 50.9 percent of the value of total deposits held with the banks. This would provide a significantly larger safety net for India’s banking customers compared to their global peers where only 80 percent of deposits are insured, with only 20-30 percent deposit value.
There is a rising distrust among depositors due to the series of bank failures and imposition of moratorium by the Reserve Bank of India (RBI). The Punjab and Maharashtra Co-operative (PMC) bank debacle widened the distrust in the country’s smaller banks.
The RBI clampdown on several cooperative banks and imposed business restrictions had left many depositors waiting for long periods to receive their money back. The new rule is expected to help improve this situation and protect depositors while also bringing back the trust in cooperative banks.
The government had increased the deposit insurance coverage for bank customers from ₹1 lakh to ₹5 lakh in the 2020 union budget. The DICGC accepts a premium from banks to offer the cover. In the event of a bank collapse, the DICGC will compensate the customers by providing the agreed upon amount.
Lenders have been paying a premium of 12 paise per ₹100 deposit since April 2020, as compared to 10 paise earlier. The law has a provision that the premium will not be hiked beyond 15 paise per ₹100 deposit. A provision is under works to increase this cap in the future, which will be determined by the government along with the RBI.According to the latest report by CNBC TV18, the finance ministry has clarified that the latest amendments will cover the PMC bank depositors. The bank was put under a moratorium when the coverage was limited to ₹1 lakh. Although a previous report stated that the ₹5 lakh cover may not be applicable. The DICGC bill has a new section that states that the ₹5 lakh insurance will also be applicable for lenders where suspension of business is already in force, thus, covering the PMC bank depositors. The bank has reportedly been under RBI restrictions since September 2019.