Government is considering to raise the protection on bank deposits from the current Rs 1 lakh when the Financial Resolution and Deposit Insurance (FRDI) Bill is taken up for final drafting, highly-placed sources said.
Only 1 lakh insured by DICGC at present
Each depositor is protected only up to a limit of Rs 1 lakh by the guarantee of the Deposit Insurance and Credit Guarantee Corporation (DICGC). Deposit beyond Rs 1 lakh does not have any protection guarantee and is treated at par with claim of unsecured creditor as of now. There have been no instances of banks failing in recent years as RBI has stepped in to work out a resolution plan, without creating any risk for depositors.
Protection to bank deposit may be raised
However, sources said the government recognises that there is a need to assure those who put in their life savings in banks and to make a provision to that effect in the bill, which is being examined by a Parliamentary panel led by BJP’s Bhupendra Yadav. “During the informal consultations we have had so far, members of the committee are also supportive of the idea and so the likelihood of the protection being raised substantially, is very high”, said a government source.
Fear among depositors over Bail in clause in FRDI Bill
The move to raise security cover for bank deposits comes amid fears over deposits being used to ‘bail in’ ailing banks in extreme situations. Sources said “needless controversy” has been created over provisions of the bill.
FM Arun Jaitley on Thursday said the government was committed to protecting interest of depositors and financial institutions, as authorities allayed apprehensions over provisions of the FRDI Bill.
The legislation proposes to set up a resolution corporation to monitor financial firms, anticipate the risk of their failure, take corrective action, and work out a resolution plan. In case of a bank failure, the proposed corporation will also provide deposit insurance up to a certain limit, which has not been specified.
Once a financial services company, including a bank, slips into critical category, the Resolution Corporation will take over the firm and prepare a resolution plan during a year, which can be extended by another 12 months.
Source : Economic Times