The Union Cabinet has approved amendments to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, enabling account holders to now claim up to Rs 5 lakh in funds within 90 days of a bank being placed under moratorium.
The Bill is now expected to be tabled in Parliament during the current monsoon session, writes The Times of India.
Prior to the amendments, when a lender was found to be on the brink of collapse, its depositors may have had to wait several years, as the government carried out liquidation or restructuring.
The finance minister noted that in the first 45 days from which the bank is put under moratorium, the DICGC would conduct an evaluation relating to deposits across all accounts. In the following 45 days, this information will be reviewed and depositors will be repaid.
The latest amendment arrives a year after the government increased insurance cover on deposits five-fold to Rs 5 lakh in response to the distress faced by account holders in failing lenders.
Now, if a bank was to fail, a depositor may immediately claim Rs 5 lakh as insurance cover within 90 days. However, it is ought to be noted that if a depositor has sums in excess of Rs 5 lakh in their accounts, there is no legal provision to recover the entire sum in the event of the lender's collapse.
The new provisions will be of particular comfort to depositors in distressed banks like the Punjab & Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank.
All deposits in private and public sector banks, small finance banks, regional banks, cooperative banks, local area banks, payments banks and branches of foreign banks (in India) are insured by the DICGC.