Deposit Insurance of Rs 5 Lakh: Customers to Get Money in 90 Days if Bank Under Moratorium

To provide relief to depositors in stressed banks like Punjab and Maharashtra Co-operative (PMC) Bank, Union Cabinet on Wednesday cleared the amendments in Deposit Insurance and Credit Guarantee Corporation Act, 1961, (DICGC Act). Depositors of banks under moratorium the will no longer have to wait for the Reserve Bank of India (RBI) to rescue the bank to access their funds. The account holders will get access to up to Rs 5 lakh funds within 90 days of a bank coming under moratorium to ensure timely support to depositors.

“We are not going retrospective. But banks that are presently under moratorium will come under this. And this will be the future process," the finance minister Nirmala Sitharaman said. The aim is to minimise the hurdles faced by depositors of banks like PMC Bank, Yes Bank and Lakshmi Vilas Bank. At least 98.3% of all deposit accounts will get covered under it, in terms of value of the deposits over 50% coverage, she added.

The central government last year raised the deposit insurance cover to ₹5 lakh from Rs 1 lakh. The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 was announced by finance minister during Budget 2021. “I shall be moving amendments to the DICGC Act, 1961 in this session itself to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover," finance minister said during her budget speech.

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly subsidiary of the RBI. The agency provides insurance cover for bank deposit holders when the bank fails to pay its depositors. DICGC protects depositors’ money kept in all commercial and foreign banks located in India; central, state, and urban co-operative banks; regional rural banks; and local banks. DICGC insures all kinds of deposit accounts of a bank, such as savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account holder per bank.

Once the bank is placed under moratorium, the lender will collect all the accountholders data where the claims need to be made. Then, the claims will go to to Deposit Insurance and Credit Guarantee Corporation for further processing. The agency will crosscheck the data within the next 45 days and start releasing the money to the customers. “On 91st or 95th day after the bank is placed under moratorium, you will get your money as the new rules will not wait for the eventual liquidation or resolution," finance minister said.

The Bill is expected to be introduced in the current monsoon session,  Sitharaman said, while sharing details about the Cabinet meeting. It will provide immediate relief to thousands of depositors, who had their money parked in stressed lenders such as PMC Bank and other small cooperative banks. As per the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and the liquidation process starts.