Mumbai:
Union Finance Minister Nirmala Sitharaman on Thursday said she has asked officials to look into steps, including amendments in laws, for better regulation of co-operative banks to prevent cases like the Punjab and Maharashtra Co-operative Bank scam.
Simultaneously, the government may consider hiking bank deposit insurance limit from Rs 1 lakh to assuage concerns of depositors.
“Our team of secretaries is going through such a proposal. There’s a committee which is looking into it,” Sitharaman said after a press conference.
“From my side, I have asked the secretaries of both the Department of Economic Affairs and Banking to work with an RBI representative and understand where there were shortcomings and what happened. They will also look, if necessary, at ways with which the respective Acts will have to be amended. If amendments will help in curbing such practices and in better empowering the regulator, we would like to do it,” Sitharaman said.
Sitharaman said the group would be chaired by two secretaries from her ministry and will also have a Deputy Governor-level RBI official.
“The aim is to take necessary legislative steps to prevent such things from happening again, empower the regulator so that it is able to handle such affairs even better. I do not know if there is any shortcoming now. I am not presuming it,” she said.
Currently, the state-owned Deposit Insurance and Credit Guarantee Corporation (DICGC) provides Rs 1 lakh cover per depositor (since May 1993) for deposits of commercial banks, RRBs, local area banks (LABs) and co-operative banks.
Deposits over Rs 1 lakh are forfeited in the rare event of a bank failure. When the PMC Bank scam surfaced last month, the RBI slapped curbs on withdrawals of deposits and superseded the board, creating panic among depositors.
The Deposit Insurance and Credit Guarantee Corporation or DICGC should double the limit for deposit cover from Rs 1 lakh to Rs 2 lakh per depositor, a report by State Bank of India said.
“The coverage should be revised and bifurcated into 2 categories. One for savings Bank account holders. The desirable coverage should be at least Rs 1 lakh for Savings bank deposit accounts which would cover 90 per cent of the total savings deposits.For term deposits the desirable coverage should be at least Rs 2 lakh covering around 70% of the total term deposit accounts” said SK Ghosh, group chief economist at the State Bank of India in a report.
“There should also be a separate provision for senior citizens”. The suggestion assumes significance aganst the back drop of crisis at PMC Bank
The current limit for deposit cover in case of a bank failure to repay depositors of Rs one lakh per depositor was last revised in 1993.
Studies suggest that since 1993, there has been a paradigm shift in the profile of customers and the conduct of business by banks. In particular, over the years, the level of insured deposits as a percentage of assessable deposits has declined from a high of 75 per cent in FY’82 to 28 per cent in FY’18. Given this backdrop, we believe, there is a dire need to revisit the insurance coverage of the bank deposits.
She said the government is giving sector- specific solutions to fight the slowdown in economic growth.
She, however, parried a specific question on whether the government accepts if the country is in the midst of an economic slowdown.
India's GDP expansion has slowed to a six-year low of five percent for the June quarter. This has led to a rash of downward revisions in expectations, including from the RBI which now expects GDP growth to come down to 6.1 percent in FY20.
The government has taken a slew of measures, including a massive cut in corporate taxes to revive economic growth, even at the cost of sacrificing revenues.
Hinting at other measures like steps to improve exports, easing credit, making more money available by early repayments to vendors and front-loading of banks recapitalisation, Sitharaman said the government has been working on sector-specific measures.
"We are giving relief to all sectors who need help," Sitharaman said.