Bank FD Holders: Cabinet Clears Amendments To Deposit Insurance Act, Know What It Means For Investors

After the Bill becomes law, thousands of depositors will get relief, who had parked their money with lenders such as PMC Bank and other small cooperative banks which are under moratorium. 

Representative Photo

New Delhi: If you are worried about your money in troubled banks, then here’s some relief! The Union Cabinet on Wednesday cleared amendments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, which will allow account holders to access up to Rs5 lakh deposits within 90 days of a bank coming under moratorium.

With a view to offering timely support to depositors, the amendment was announced by Finance Minister Nirmala Sitharman on Wednesday. Under the current provisions, the deposit insurance of up to Rs 5 lakh comes into effect when the license of a bank is cancelled and the liquidation process starts. 

"Deposit Insurance Credit Guarantee Corporation was created in case people faced difficulties after RBI imposes moratoriums on banks. Today's Cabinet meeting has decided that within 90 days, depositors will receive Rs 5 lakhs of their money," said Union Minister Anurag Thakur.

Who will be benefitted?

Now, depositors of a bank under moratorium will no longer have to wait longer in order to access their money. The government has decided to give their money back within a 90 days period. In the first 45 days, banks in distress will be handed over to the insurance corporation. In a span of 90 days process will be definitely completed without waiting for resolution, added FM.

The amendment will cover all commercial banks and even branches of foreign banks operating in India will come under the purview of this legislation and this will be applicable to banks which are at present under moratorium.

After the Bill becomes law, thousands of depositors will get relief, who had parked their money with lenders such as PMC Bank and other small cooperative banks which are under moratorium. 

It is to be noted that 98.3 per cent of all deposit accounts will get covered while in terms of value of the deposits, over 50 per cent coverage will be there by DICGC Act.

“Each depositors deposit in a bank is insured up to a maximum of Rs5 lakh, for both principal and interest. Now in India with an increase in insurance amount from Rs1 lakh to Rs5 lakh is going to cover 98.3% of all deposit account,” Finance Minister said.

It will also cover those institutions which have already come under moratorium. “It is not going retrospectively back, but if your bank has already been declared under moratorium, this will cover,” the FM added.

DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.

Last year, the government raised insurance cover on deposit five-folds to Rs 5 lakh to provide support to depositors of ailing lenders like Punjab and Maharashtra Co-operative (PMC) Bank. After the collapse of PMC Bank, Yes Bank and Lakshmi Vilas Bank, these banks had to undergo restructuring by the regulator and the government.

The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 is the budget announcement made by the Finance Minister. The Bill is expected to be introduced in the current monsoon session.