Deposit Insurance Amendment Bill Allows Depositors Access To Their Money Within 90 Days

As the final week of the monsoon session gets underway, the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, was passed in Parliament on Monday (9 August).

The amendment was introduced by Finance Minister Nirmala Sitharaman in Rajya Sabha on 30 July and was passed in the house on 4 August, and sent to Lok Sabha.

Under the act, when any insured bank becomes defunct, the Deposit Guarantee and Credit Guarantee Corporation (DICGC) is liable to pay the insured amount to the depositor. At present, all commercial banks and co-operative banks are insured with the DICGC insuring all types of deposits such as savings, fixed, current and recurring.

Sitharaman in her budget speech last year had increased the amount insured from Rs 1 lakh to Rs 5 lakh. This move had ensured that 98.3 per cent of all accounts had been covered and provided 50 per cent of total deposit coverage. The new amendment was also initially announced in this year’s budget speech.

Some of the highlights of the new amendments are:

Insured Deposit Amount Must Be Paid Within 90 Days

The amendment introduced a new section 18A for interim deposit insurance. Under this section, the corporation will be liable to pay the insured amount to depositors within 90 days of suspension of business by the bank.

Interim relief to depositors is guaranteed if any directions issued or any prohibition order made by Reserve Bank of India (RBI) to such insured banks under the Banking Regulation Act (1949) has mandated to restrict or prohibit depositors from accessing their deposits.

It is also applicable to banks whose business has been currently suspended by such prohibitions or directions. This would bring banks such as the Punjab Maharashtra Co-operative (PMC) Bank as well as the Guru Raghavendra Co-operative Bank under its ambit. The calculation of 90 days for such banks would begin from the day this bill becomes an act.

But if the RBI passes any subsequent order, allowing the insured bank to resume its business before the deposit amount has been paid by the corporation, the corporation is freed from this liability.

Allows Deferment Of Repayment Of Amount To The Corporation

The corporation defines the time limit within which the bank must repay the amount (disbursed by the corporation to depositors) back to it. The amendment allows the deferment of payment of such amount to the corporation if the board decides as per the regulations.

Such regulations shall provide for prudential principles to assess the capability of the bank to make repayment to the corporation.

Imposes Penalty For Non-Payment Of Amount To The Corporation

If the bank fails to pay back the amount disbursed by the corporation to the depositors within the specified time limit, then the corporation may charge a penal rate of interest of a maximum of 2 per cent above the repo rate of RBI per annum.

Premium Of The Corporation Can Be Increased

At present, the corporation can charge a maximum of 0.15 per cent per annum as premium. The amendment allows the corporation to raise the premium with the prior approval of the RBI after considering the financial situation of the country.