Finance Minister Nirmala Sitharaman on Friday said the government will bring legislations on raising insurance cover on bank deposits from the current Rs 1 lakh and regulating multi-state cooperative banks amidst a crisis in PMC Bank affecting lakhs of depositors.
These legislations will be brought during the Winter Session of Parliament starting today.
Nirmala Sitharaman said “Work is on and we shall go to the Cabinet for approval to introduce a legislation in winter session. The legislation will amend the necessary Acts and the laws to make sure that banking functions undertaken by cooperatives sector will be brought under the Banking Regulation Act for complying with prudential norms.”
Amid the recent PMC Bank scam, that affected lakhs of customers who are facing difficulties in withdrawing their entire money due to restrictions imposed by the RBI, these legislative changes have become more significance.
At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and Credit Guarantee Corporation (DICGC). It is expected that The Ministry of Finance may hike the deposit insurance limit to Rs 5 lakh.
The current limit of deposit insurance was last revised on May 1, 1993, after the Bank of Karad went down in the securities scam of 1992. As much as 90 per cent of the accounts had that much or less amount when this limit was raised to Rs 1 lakh.
Additionally, the finance ministry may introduce a new scheme raising deposit insurance for wholesale depositors at Rs 25 lakh.
Apart from these, the ministry may take up proposal to obtain additional deposit insurance, which will be over and above the proposed enhanced limits, for both individuals and institutions by payment of additional premium.
DICGC, which is a wholly-owned subsidiary of the RBI, may create a separate reserve to protect the interest of depositors of banks which fail due to frauds like in the case of the Punjab & Maharashtra and the Pen Co-operative Urban Bank.