The Union Cabinet approved modifications to the Deposit Insurance and Credit Guarantee Corporation Act, 1961, on Wednesday to provide assistance to depositors in troubled banks such as Punjab and Maharashtra Co-operative (PMC) Bank (DICGC Act). Depositors at banks that are subject to a moratorium would no longer have to wait for the Reserve Bank of India (RBI) to save the bank before being able to access their funds. To ensure prompt help to depositors, account holders will have access to up to Rs 5 lakh in money within 90 days of a bank coming under moratorium.
“We’re not going back in time. However, banks that are currently subject to a moratorium will be affected. And this will be the approach in the future,” said Nirmala Sitharaman, the finance minister. The goal is to reduce the barriers that depositors of banks such as PMC Bank, Yes Bank, and Lakshmi Vilas Bank confront. She noted that it will cover at least 98.3 percent of all deposit accounts, with a value of deposits exceeding 50% coverage.
Last year, the central government increased the deposit insurance cover from Rs 1 lakh to Rs 5 lakh. During Budget 2021, the finance minister announced a change to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961. “I will be moving amendments to the DICGC Act, 1961 this session itself to streamline the provisions, so that if a bank is temporarily unable to meet its obligations, depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover,” the finance minister said during her budget speech.
The Reserve Bank of India’s Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of the central bank. When a bank fails to pay its depositors, the agency provides insurance coverage for them. All commercial and foreign banks in India, as well as central, state, and urban co-operative banks, regional rural banks, and local banks, are covered by the DICGC. The Deposit Insurance Corporation of India (DICGC) guarantees all types of bank deposit accounts, including savings, current, recurring, and fixed deposits, up to a limit of Rs. 5 lakh per account holder per bank.
When a bank is placed under a moratorium, the lender will collect all accountholder data in order to file claims. The claims will then be sent to the Deposit Insurance and Credit Guarantee Corporation to be processed further. Within the next 45 days, the agency will double-check the data and begin disbursing funds to clients. “You will collect your money on the 91st or 95th day after the bank is placed under moratorium,” the finance minister stated, adding that the new laws will not wait for the bank’s final liquidation or resolution.
While providing details about the Cabinet meeting, Sitharaman stated that the Bill is expected to be introduced during the current monsoon session. Thousands of depositors who have their money in troubled lenders like PMC Bank and other small cooperative banks would benefit immediately. When a bank’s licence is revoked and the liquidation procedure begins, the deposit insurance of up to Rs 5 lakh kicks in, according to current laws.
“For small depositors, this is a great respite. “There is certainly scope for raising the limit further, as middle-income depositors may still not receive full benefit in the event of a bank failure, and one may need to rely on a merger or other form of bailout to take care of customer money,” said Jyoti Prakash Gadia, managing director, Resurgent India.
