Depositors will be paid up to Rs 5 lakh within 90 days of banks being put under moratorium: Centre
The finance minister said that 98.3% of all bank accounts would be fully protected by the law.
The Union Cabinet on Wednesday approved amendments to the Deposit Insurance Credit Guarantee Corporation Act, under which account holders can access up to Rs 5 lakh within 90 days of a distressed bank being placed under moratorium.
The Reserve Bank of India holds the power to put distressed banks under moratoriums, typically imposing restrictions like limits on withdrawals by customers. The amendment is aimed at providing relief to customers in such cases.
Last year, the central government had raised insurance cover on deposit to Rs 5 lakh from Rs 1 lakh to support account holders of stressed lenders like the Punjab and Maharashtra Co-operative Bank.
“The Deposit Insurance Credit Guarantee Corporation insures bank deposits such as savings, fixed deposits, current or recurring deposits,” Finance Minister Nirmala Sitharaman said at a press conference in New Delhi. “It also covers commercial, public, private sector banks and branches of foreign banks in India.”
The finance minister added that 98.3% of all bank accounts would be fully protected within the law.
“Normally, it takes around eight to 10 years after complete liquidation to get money under insurance; but now, even if there is a moratorium, within 90 days, the process will definitely be completed, giving relief to depositors,” Sitharaman added, according to NDTV.
Within the first 45 days of the bank being put under moratorium, it would collect all information relating to deposit accounts. In the next 45 days, the DICGC will review the information and repay depositors, Sitharaman said.
The amended Bill, however, will have to be passed by both Houses of Parliament to become law.
Meanwhile, Union minister Anurag Thakur said that Deposit Insurance Credit Guarantee Corporation was created for those facing problems once the Reserve Bank of India imposes moratoriums on banks. “During the Cabinet’s meeting, it was decided that within 90 days, depositors will receive Rs 5 lakh of their money,” he added.
In September 2019, the central bank had put restrictions on customers of the Punjab and Maharashtra Co-operative Bank after uncovering financial irregularities such as under-reporting of bad loans. Following the collapse of PMC Bank, Yes Bank and Lakshmi Vilas Bank also came under stress, leading to restructuring by the regulator and the Centre.