The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 is the budget announcement made by the Finance Minister and the Bill is almost ready, sources said.
It is expected that the Bill will be tabled in the upcoming monsoon session after being vetted by the Union Cabinet, sources added.
Once the Bill becomes the 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 liquidation process starts.
DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.
Finance Minister Nirmala Sitharaman in the Budget speech in February said the government had approved an increase in the Deposit Insurance cover from Rs 1 lakh to Rs 5 lakh for bank customers last year.
“I shall be moving amendments to the DICGC Act, 1961 in this session itself to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover. This would help depositors of banks that are currently under stress,” she had said.
It could not be presented in the Budget session due to curtailment of the last session following the spread of second wave of COVID-19 pandemic.
It is to be noted that the enhanced deposit insurance cover of Rs 5 lakh is effective from February 4, 2020. The increase was done after a gap of 27 years as it was static since 1993. The cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.
With increased insurance cover, the banks are paying a higher premium of 12 paise against 10 paise per Rs 100 deposited without any additional burden on account holders.
The deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. There are some exemptions such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.
It can be recalled that way back in 2009, the Raghuram Rajan committee on financial sector reforms had recommended strengthening the capacity of the DICGC, a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.