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1-min read

PMC Scam Indicates It is Time to Massively Increase Depositor Insurance: Report

The report said the coverage should be revised and divided into two categories — at least Rs 1 lakh for savings deposits and of at least Rs 2 lakh for term-deposits.

PTI

Updated:October 7, 2019, 3:28 PM IST
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PMC Scam Indicates It is Time to Massively Increase Depositor Insurance: Report
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Mumbai: The Punjab & Maharashtra Cooperative Bank (PMC) scam points to the urgent need to massively increase the depositor insurance cover from the present Rs 1 lakh, says a report.

The Deposit Insurance & Credit Guarantee Corporation (DICGC) insures each depositor in a bank up to a maximum of Rs 1 lakh for both principal and interest as on the date of liquidation/cancellation of the affected bank's licence or from the date of amalgamation/merger.

Last month, the Reserve Bank had imposed a slew of restrictions on the urban cooperative bank PMC for six months, after finding serious irregularities, including hiding of bad loans to bankrupt real estate developer HDIL.

The curbs included withdrawal limit at Rs 1,000, which was later increased to Rs 25,000 per depositor, ban on lending and accepting fresh deposits.

The PMC crisis has brought to the fore the need to increase the deposit insurance coverage provided by the DICGC.

It can be noted that there has been repeated call from the industry to do away with the law protecting the depositors and the present government had tried twice in the past five years to whittle it down but abandoned the plan due to resistance from the Opposition benches.

"The current upper limit of Rs 1 lakh per depositor, we believe, has outlived its shelf life and there is a need to revisit it," SBI's Research said in a report Monday.

The report said the DICGC coverage should be revised and bi-furcated into two categories — desirable coverage of at least Rs 1 lakh for savings deposits which are around 90 percent of total accounts, and a desirable coverage of at least Rs 2 lakh for term-deposits which are around 70 percent of total accounts.

There should also be a separate provision for senior citizens, the report added.

This revision in the DICGC coverage becomes all the more desirable as the country offers no social security to senior citizens/retired people who thus mostly keep their savings in fixed deposits, it said, adding there are also many small savers who have fixed deposits with the same intent.

"In the extreme event of a bank failure, it is unfair if such hard earned money is forfeited," it said.

Depositors must get an incentive to spare a part of their total deposits to buy bank bonds that provide guaranteed coupon rates on a half yearly basis and is tax-free.

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