Sahakar pitches 5 lakh insurance cover for bank deposits

Mumbai: In light of troubles at PMC Bank, Sahakar Bharati, a non-profit with many of its office bearers close to the RSS, has pitched for an increase in deposit insurance limits to Rs 5 lakh for individuals.

In a letter to Finance Minister Nirmala Sitharaman, the body focused on cooperative sector said, three-fourths of Indian banks are "never likely to fail" and also called for liberalisation measures like creating additional deposit covers by banks if they want to.

The decisions taken by the body come in the light of the Rs 4,355 crore fraud at PMC Bank, where deposit withdrawals have been capped at Rs 50,000 at present, impacting lakhs of depositors. At present, the deposit insurance limit is Rs 1 lakh and was last revised in 1993.

The PMC issue has led to voices of raising the cover. Sitharaman has also said there will be a relook at the Deposit Insurance and Credit Guarantee Corporation (DICGC) limits.

At an ongoing meeting of office bearers which started on Sunday at Vadodara, Sahakar Bharati resolved to create two categories of depositors - individual and institutional - and have covers of Rs 5 lakh and Rs 25 lakh, respectively, for them, the letter to the FM said.

The letter signed by the body's office-bearers including founding member and present RBI board member Satish Marathe also pitched for broader liberalisation in the deposit insurance scheme by asking for permitting banks wanting to obtain covers above the enhanced limits by payment of additional premium.

It also says that the DICGC, which oversees this scheme, should "start charging risk-based premium to all banks, irrespective of their nature of ownership" with a notice of three years.

"This will enable the depositors to pick and choose banks of their choice for the placement of deposits," the letter, which also comes amid reports of the Centre mulling to re-introduce the Financial Resolution and Deposit Insurance (FRDI) Bill to take care of insolvencies in the financial sector said.

However, the body made it clear that there is no case for hiking the deposit insurance charges to be levied from banks if the limits are enhanced to the levels suggested by it, claiming 75 per cent of the banks in the system are never likely to fail.

To tackle instances of frauds, the body recommended creation of a special reserve by the DICGC to protect depositors' interest in banks hit by scams. The letter said the measures suggested by it are necessary to "instill" a sense of confidence amongst Indian depositors".