In a big relief to account holders of troubled banks, the Union Cabinet on Wednesday cleared the Deposit Insurance and Credit Guarantee Corporation (Amendment Bill) scheme that will ensure that depositors get up to Rs 5 lakh within 90 days even if the lender has been put under moratorium by the Reserve Bank of India (RBI).

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The Deposit Insurance and Credit Guarantee Corporation (Amendment Bill) addresses the long-standing concern of the depositors of distressed banks, exemplified during the crisis in Yes Bank and PMC Bank.

Welcoming the move, experts said it will provide relief to depositors of troubled banks.

Rachit Chawla, CEO & Founder, Finway FSC (Financial Services Company) said this amendment paves the way for increasing the insurance coverage on deposits and significantly shortens the time frame during which depositors or investors have to wait for recovering their funds if the bank enters troubled waters.

“The move is aimed at providing relief to depositors/investors who are using banks that are currently under moratorium. Each depositor’s parked funds are now insured up to Rs 5 lakh in every single bank inclusive of the principal and interest amounts. According to global norms, only 80 percent of the deposit accounts worldwide are protected by such insurance measures, and only 20-30 percent of the depositor funds get covered in the process. With a revision, 98.3 percent of all existing deposit accounts will be roped in under the insurance umbrella,” Chawla said.

Further, Chawla said that this means that 50.9 percent of the total deposit value will now become insured which is far beyond what has been observed so far.

Additionally, the amendment will alleviate a significant amount of stress among depositors and investors who are distressed themselves during the COVID-19 pandemic.

“It restores our faith in the financial framework of the country,” Chawla added.

The deposit insurance program insures bank deposits including savings, recurring, current and fixed deposits of up to Rs 5 lakh of each depositor/investor with each scheduled bank in case of bank failures.

Each depositor/investor in a bank is insured up to a maximum of Rs 5 lakh for both principal and interest amount held by him/her in the same right and same capacity as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

The DICGC while registering the banks as insured banks furnishes them with printed leaflets for display giving information relating to the protection afforded by the Corporation to the depositors of the insured banks.

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