The Union Cabinet, on July 28, cleared the Deposit Insurance and Credit Guarantee Corporation (Amendment Bill), Finance Minister Nirmala Sitharaman said.
The Finance Minister said that as per the bill, 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.
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.
"This decision will give relief to depositors whose banks are already under moratorium. We will be nearly covering 98.3 percent of all depositors," Sitharaman said, adding that the bill will be tabled in Parliament in this session itself.
"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.
