SBI report seeks increase in depositor insurance

Mumbai: The Punjab & Maharashtra Cooperative Bank (PMC) scam points to the urgent need to massively increase the depositor insurance cover from the present Rs 1 lakh, says a report.

The Deposit Insurance & Credit Guarantee Corporation (DICGC) insures each depositor in a bank up to a maximum of Rs 1 lakh for both principal and interest as on the date of liquidation/cancellation of the affected bank's licence or from the date of amalgamation/merger. Last month, the Reserve Bank had imposed a slew of restrictions on the urban cooperative bank PMC for six months, after finding serious irregularities, including hiding of bad loans to bankrupt real estate developer HDIL. The curbs included withdrawal limit at Rs 1,000, which was later increased to Rs 25,000 per depositor, ban on lending and accepting fresh deposits.

The PMC crisis has brought to the fore the need to increase the deposit insurance coverage provided by the DICGC. It can be noted that there has been repeated call from the industry to do away with the law protecting the depositors and the present government had tried twice in the past five years to whittle it down but abandoned the plan due to resistance from the Opposition benches.

"The current upper limit of Rs 1 lakh per depositor, we believe, has outlived its shelf life and there is a need to revisit it," SBI's Research said in a report on Monday. The report said the DICGC coverage should be revised and bi-furcated into two categories--desirable coverage of at least Rs 1 lakh for savings deposits which are around 90 per cent of total accounts, and a desirable coverage of at least Rs 2 lakh for term-deposits which are around 70 per cent of total accounts. There should also be a separate provision for senior citizens, the report added.