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Lok Sabha passes bill to help small depositors with savings in stressed banks

Lok Sabha passes bill to help small depositors with savings in stressed banks

Once the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, has been implemented, it will introduce key changes which are aimed at improving the working of insurance for depositors of stressed banks

The amendment would give RBI-operated DICGC greater say in a stressed bank's liquidation process The amendment would give RBI-operated DICGC greater say in a stressed bank's liquidation process

The Lok Sabha on Monday passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 which is expected to help small depositors with savings in stressed banks such as the Punjab and Maharashtra Co-Operative (PMC) Bank.

Once this amendment has been implemented, it will introduce key changes which are aimed at improving the working of insurance for depositors in stressed banks.

According to the bill, the Deposit Insurance and Credit Guarantee Corporation (DICGC) will have to pay the insurance amount of Rs 5 lakh per depositor as soon as a commercial or co-operative bank is placed under a moratorium that bars the depositors from withdrawing money.

Currently, the DICGC has to pay the insurance amount only after an order of liquidation has been passed against the bank which has been placed under a moratorium. This system is troublesome for depositors as they have to wait for a long time to access their own money due to the resolution process continuing on for years.

Under the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021,  DICGC has to pay depositors of the stressed bank upfront within 90 days which has been decided at the deadline for the payment of dues.

The Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 will also aid the Reserve Bank of India (RBI) in the process of dealing with stressed banks. Currently, the central bank is placed under immense pressure from depositors demanding a quick resolution whenever it places a stressed bank under a moratorium.

"The days when RBI had to create hasty rescue packages are over," a senior finance ministry official said.

The amendment would give RBI-operated DICGC greater say in a stressed bank's liquidation process. DICGC has now been given priority over creditors of the stressed bank.

Once the amendment has been implemented, DICGC's balance sheet will improve as the corporation will be free to charge higher insurance premiums from banks. The current cap of 15 paise per Rs 100 of deposit will be removed as per the amendment.

The amendment will provide backup to the Centre's move to raise the insurance coverage for individual depositors in banks from Rs 1 lakh to Rs 5 lakh. This will cover most depositors in the country as over 98% of account holders in India have less than 5 lakh rupees stored as savings in banks.

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Also Read: Rajya Sabha clears Deposit Insurance & Credit Guarantee Corporation (Amendment) Bill