scorecardresearch
Follow Us:
Friday, December 03, 2021

Collapsed co-operative banks: DICGC facing devolvement of over Rs 14,000 crore

After the collapse of PMC Bank, there has been a demand from several quarters that the DICGC should hike the coverage cap.

By: ENS Economic Bureau | Mumbai |
January 6, 2020 3:19:37 am
Deposit Insurance, Credit Guarantee Corporation, DICGC, RBI, Reserve Bank of India, co-operative banks, RBI, Indian express The DICGC has Rs 87,995 crore surplus funds as of March 2019, with premium income of Rs 12,043 crore in 2018-19 against Rs 11,128 crore a year ago.

The Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI subsidiary that gives insurance cover to bank deposits up to Rs one lakh per customer, is facing devolvement of Rs 14,098 crore as of September 2019, a rise of over Rs 4,000 crore from Rs 10,006 crore in June last.

According to data available from the Reserve Bank of India (RBI), the extent of devolvement on DICGC in the event of all the banks ‘under direction’ or ‘weak’ banks going into liquidation or ordered to be wound up would be Rs 3,414 crore in the case of state co-operative banks (StCBs) and district central co-operative banks (DCCBs), and Rs 10,684 crore in the case of urban co-operative banks (UCBs), including Punjab and Maharashtra Co-operative (PMC) Bank.

Devolvement in the case of UCBs (which are ‘under direction’) accounted for a lion’s share, with the figure rising from Rs 3,427 crore to Rs 8,116 crore by September 2019, mainly due to the PMC Bank issue, data from the RBI reveals.

The latest bank to come under the RBI direction, PMC Bank has public deposits of around Rs 11,000 crore. However, the entire deposit won’t come under the DICGC cover as a depositor will get only Rs one lakh irrespective of the total deposit held by the customer in an account.

Explained

No RBI proposal to govt yet on hiking deposit cover

Depositors and the Damodaran panel want insurance cover to be raised — at least to Rs 5 lakh — so that depositors can keep their deposits in a bank convenient for them and get protection for their funds. However, the government says no proposal has been received from the RBI in this regard.

After the collapse of PMC Bank, there has been a demand from several quarters that the DICGC should hike the coverage cap. The DICGC has Rs 87,995 crore surplus funds as of March 2019, with premium income of Rs 12,043 crore in 2018-19 against Rs 11,128 crore a year ago.

The central bank says insured deposits of banks which are ‘under direction’ or ‘weak’ constituted about 0.4 per cent of the total insured deposits of commercial and co-operative banks, as of end-September 2019. As a percentage of the deposit insurance fund, these deposits are about 13.9 per cent.

“It needs to be noted that the banks which are under direction/weak will go under liquidation over a period, not together at a particular point of time. Weak banks may also witness a revival,” says the RBI’s Financial Stability Report.

The DICGC has facilitated the merger of 22 weak banks with strong banks since 1985 (nine commercial banks and 13 co-operative banks). “However, the recovery rate of funds provided by DICGC is not satisfactory,” the RBI report further says.

With co-operative banks facing RBI action due to mismanagement and frauds, the banking regulator says it is taking steps to integrate fraud reporting of non-banking financial companies and UCBs in its central fraud registry database.

Such interlinking would serve as an invaluable resource in effective fraud detection/monitoring.

“Banks are required to set up specialised units to make use of market intelligence and data analytics and also put in place transaction monitoring system. In order to bring clarity, the role and scope of forensic audit along with timelines is also being examined,” the RBI report says.

Banking laws were made applicable to co-operative societies since March 1, 1966.

Currently, there is duality of control over StCBs, DCCBs and UCBs between the Registrar of Cooperative Societies (RCS) or the Central Registrar of Cooperative Societies (CRCS) and the Reserve Bank.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

  • Newsguard
  • The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.
  • Newsguard
Advertisement
Advertisement
Advertisement
Advertisement