The Union Cabinet has approved the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 and has been introduced in Parliament’s monsoon session.
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- Recent troubles for depositors in getting immediate access to their funds in banks such as Punjab & Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank has put spotlight on the subject of deposit insurance.
- The Union Cabinet recently cleared changes to the deposit insurance laws to provide funds up to Rs 5 lakh to an account holder within 90 days in the event of a bank coming under the moratorium imposed by the RBI.
- Earlier, account holders had to wait for years till the liquidation or restructuring of a distressed lender to get their deposits that are insured against default.
About the Provisions of the bill
- The cover of Rs 5 lakh per depositor is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI).
- It provides deposit insurance that works as a protection cover for bank deposit holders when the bank fails to pay its depositors.
- It protects depositors’ money kept in all commercial and foreign banks located in India; central, state, and urban co-operative banks; regional rural banks; and local banks, provided that the bank has opted for DICGC cover.
- The agency’s operations are performed as per the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961.
- Depositors normally end up waiting for 8-10 years before they are able to access their deposits in a distressed bank only after its complete liquidation.
- With the changes being proposed to the law, now depositors will get insurance money within 90 days, without waiting for eventual liquidation of the distressed banks.
- This will cover banks already under moratorium and those that could come under moratorium.
- Within the first 45 days of the bank being put under moratorium, the DICGC would collect all information relating to deposit accounts. In the next 45 days, it will review the information and repay depositors closer to the 90th day.
- This will be beneficial to depositors of PMC Bank, under moratorium since September 2019, with depositors not being able to access funds beyond Rs 1 lakh.