In a bid to ensure timely support to depositors of stressed banks, the Union Cabinet on Wednesday approved amendment to the DICGC Act to provide account holders access to up to Rs 5 lakh funds within 90 days of a bank coming under moratorium. Cabinet meeting chaired by Prime Minister Narendra Modi also cleared amendments to the Limited Liability Partnership (LLP) Act, with an aim to decriminalise various provisions under the law and foster the ease of doing business in the country.
“The Deposit Insurance and Credit Guarantee Corporation Bill 2021 has been cleared by the Cabinet today,” said Finance Minister Nirmala Sitharaman, briefing media. The Bill is expected to be introduced in the Monsoon Session, she added.
Last year, the Government raised insurance cover on deposit five-fold to Rs 5 lakh to provide support to depositors of ailing lenders like Punjab and Maharashtra Co-operative (PMC) Bank.
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. Deposit Insurance Credit Guarantee Cooperation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits. DICGC insures all bank deposits, such as savings of fixed or current deposits or recurring deposits, and it covers all commercial banks, including foreign bank branches in India, Sitharaman said.
With the proposed amendment, each account holder’s deposit in banks is insured up to a maximum of Rs 5 lakh, for both principal and interest, she said. “Now, what is the international coverage and what is Indian coverage...In India with the increase of insurance amount from Rs 1 lakh to Rs 5 lakh is going to cover 98.3 per cent of all deposit accounts...In terms of deposit value 50.9 per cent deposits value will be covered. Globally, deposit insurance coverage is only 80 per cent of all deposit accounts and it covers only 20-30 per cent deposit value,” she said.
The amendments in the LLP Act, including removing criminal action for failure to comply with provisions of the Act, will help about 2.30 lakh such firms in the country. With the approval, the total number of penal provisions in the Act will be reduced to 22, the number of compoundable offences will be only seven, the number of non-compoundable offences will be only three, and the number of defaults to be dealt under In-House Adjudication Mechanism (IAM) will be only 12, among others, said Finance Minister.