Abill has been passed in the Lok Sabha on Monday to help small depositors with savings in stressed banks. The Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 is aimed at helping small depositors, especially people who have savings in stressed banks like the Punjab and Maharashtra Co-Operative Bank Ltd.

Once the amendment comes into force, it will help bring about three key changes aimed at improving the working of insurance for depositors.

Read | Depositors in stressed banks to get insurance money within 90 days of moratorium

HOW WILL IT HELP DEPOSITORS?

Firstly, the Deposit Insurance and Credit Guarantee Corporation (DICGC) will be liable 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 restricts from withdrawing their money.

Earlier, the DICGC was liable to pay depositors only after an order of liquidation was passed against any stressed bank. This used to lead to a long wait for depositors to access their own money as the process of resolution continued for years.

Under the amended law, the DICGC has to pay the depositors upfront in 90 days, which is the deadline for paying the dues.

RBI BENEFITS

The amendment also eases proceedings for the Reserve Bank of India (RBI) in such cases. After putting a stressed bank under directions or moratorium, the central bank used to be under tremendous pressure to go for a quick fix resolution as pressure from depositors used to be immense.

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

The second benefit from the amendment in the law is that it provides a greater say to the RBI-operated DICGC in a bank’s liquidation process. The DICGC now would enjoy priority over creditors.

In addition, the DICGC balance sheet is expected to improve as it is free to charge higher insurance premiums from banks as the current cap of 15 paise per Rs 100 of deposit will be removed.

The amendment to the law will add muscle to the Centre’s move last year to raise the insurance coverage for individual depositors in banks from Rs 1 lakh to Rs 5 lakh. Since almost 98 per cent of accounts in Indian banks have less than Rs 5 lakh, the new rule protects the interest of majority depositors.

The government had announced the move after depositors in stressed banks like PMC had to go through harrowing times. There are several cooperative banks under RBI-directed moratoriums.

During a brief debate in the Rajya Sabha last week, Finance Minister Nirmala Sitharaman said the legislation will help depositors of 23 cooperative banks facing stress. “PMC Bank depositors will also benefit from this bill,” she said.