PM Modi sees depositors’ confidence in the banking system rising

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Claiming that the government’s recent decision to upgrade deposit insurance coverage to ₹5 lakhs will address the difficulties faced by poor and middle class depositors’, Prime Minister Narendra Modi said on Sunday that up to 76 lakh crore of depositors’ wealth are now secured with the latest move covering 98.1 percent of total accounts in the banking system.

Addressing a program in the capital titled “Depositors First: Guaranteed payment of deposit insurance in time up to ₹5 lakh”, Modi pointed out that his government had also amended the law to allow depositors to get their money back within a limited time in case the banks go below.

“Previously there was no time limit to get your own money back and the poor and middle class struggled for it, now our government has made it mandatory that within 90 days i.e. 3 months , depositors get their money back,” Modi said.

Modification of the DICGC law

Under the recently amended Depositors Insurance Act, every depositor in a bank is insured up to a maximum of ₹5 lakh for the amount of principal and interest. Previously, the depositor insurance limit was ₹1 lakh. In addition, previously, the responsibility of the DICGC only came into play when the liquidation order was issued against a bank.

Now after the recent amendments to the DICGC Act, the DICGC is required to pay the depositors the insured amount (up to ₹5 lakh) within 90 days from the date any order or directive or plan is passed from so that it prohibits the depositors of the insured bank from accessing its deposits.

Modi also said that he, while chief minister, repeatedly asked the central government to increase bank deposit insurance coverage to ₹5 lakh from ₹1 lakh but to no avail. “So people sent me to do it and I did it,” Modi said.

Modi said that after the last increase in insurance coverage, more than 1 lakh depositors got around ₹1,300 crore of their money which was stuck with troubled banks.

He also said about three more lakh of these account holders would get their deposits from banks that are under similar stress.

It may be recalled that the Indian Deposit Insurance and Credit Guarantee Corporation (DICGC) cover was last increased in 1993 from ₹30,000 to ₹1 lakh.

“We understood the challenges faced by the poor and therefore increased the amount of depositor insurance. The increased amount is a sense of security for them, in case a bank faces financial difficulties,” Modi said.

Small public sector banks

The Prime Minister said that over the years many small public sector banks have been strengthened in all respects by merging them with larger banks. This has improved the capacity, competence and transparency of banks in their operation. When RBI monitors cooperative banks, it will also increase the general depositor’s confidence in them, he said.

Speaking on the occasion, Finance Minister Nirmala Sitharaman said the Modi-led government had shown commitment to depositors and the interests of the middle class were always kept in mind. “The government has been responsive to the interest of middle class depositors. That’s why we also didn’t allow legal changes on depositors’ insurance to have prospective effect as is always the case with any law. We didn’t treat it prospectively,” she added.

She pointed out that the health of public sector banks has improved so much that they are able to raise funds on their own.

deposit insurance

RBI Governor Shaktikanta Das said that this (increasing deposit insurance coverage to ₹5 lakh) is a milestone in the evolution of depositor protection in the country. He underlined that “Depositors First” is the general guiding philosophy of the Reserve Bank of India in all its actions and policies in relation to banks.

“Our goal is to protect the resilience of banks and keep depositor protection in mind first and foremost,” he said.

Das also said that the DICGC has now automated the process of receiving and resolving complaints and that the technology has been leveraged and the whole process has been automated. “The first group of banks where the 90-day period ended on November 29, all complaints were resolved thanks to the cooperation of public sector banks,” he said.

Deposit insurance payments should be seen as a measure of last resort, he added. Das also said that RBI will soon take action on the recommendations of the committee on urban cooperative banks. “When it comes to surveillance, we no longer rely on symptoms. We do this through root cause analysis. We are looking at banks’ business models to see if they are viable without of course interfering in the business flexibility that these banks need to have for their success,” Das said.

Das also advised depositors to be cautious when seeking high yields from deposits, noting that high yields and high rates are generally associated with high risks. “I’m not generalizing. There are institutions that offer high interest rates and they are viable, but depositors should be careful,” he said.

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