Finance Minister Nirmala Sitharaman Thursday said she has asked officials to look into steps, including amendments in laws, for better regulation of co-operative banks to prevent cases like the Punjab and Maharashtra Co-operative Bank scam. Simultaneously, the government may consider hiking bank deposit insurance limit from Rs 1 lakh to assuage concerns of depositors.
“Our team is going through such a proposal. There’s a committee which is looking into it,” Sitharaman said after a press conference.
“The Ministry of Finance may have nothing to do with it because the RBI is the regulator and they are doing what as by law needs to be done. From my side, I have asked the secretaries of both the Department of Economic Affairs and Banking to work with an RBI representative and understand where there were shortcomings and what happened. They will also look, if necessary, at ways with which the respective Acts will have to be amended. If amendments will help in curbing such practices and in better empowering the regulator, we would like to do it,” Sitharaman said.
Currently, the state-owned Deposit Insurance and Credit Guarantee Corporation (DICGC) provides Rs 1 lakh cover per depositor (since May 1993) for deposits of commercial banks, RRBs, local area banks (LABs) and co-operative banks. Deposits over Rs 1 lakh are forfeited in the rare event of a bank failure. When the PMC Bank scam surfaced last month, the RBI slapped curbs on withdrawals of deposits and superseded the board, creating panic among depositors.
The central bank initially allowed withdrawal of Rs 1,000 per account which was later hiked to Rs 10,000, and subsequently to Rs 25,000.
According to bankers, the current upper limit of Rs 1 lakh per depositor has outlived its shelf life. Further, over the years, the composition of bank deposits has undergone massive changes in India. The DICGC coverage should be hiked to at least Rs 2 lakh for term deposits, bankers say.
Sitharaman said the group would be chaired by two secretaries from her ministry and will also have a Deputy Governor-level RBI official. “The aim is to take necessary legislative steps to prevent such things from happening again, empower the regulator so that it is able to handle such affairs even better. I do not know if there is any shortcoming now. I am not presuming it,” she said.
On Wednesday, several PMC depositors, including pensioners, lined up outside the state BJP office in South Mumbai where Sitharaman was to hold a press conference. As soon as the Minister arrived, the depositors surrounded the minister shouting slogans. She met a delegation of depositors and promised them the government was working towards a “swift resolution” to the crisis.
“In such cases where these are some malpractices and then boards gets bypassed, the RBI takes care of placing a resolution professional, handling the matter and so on which I have explained to the affected customers of PMC who met me,” Sitharaman said during the press conference.
She said that even though the Finance Ministry did not directly deal with multi-state co-operative banks, she asked her department secretaries to look into what has gone wrong with such banks and whether amendments are required for better regulation of these bodies. If required, regulations and amendments could be brought in the winter session of Parliament, she said.
On providing immediate relief to PMC account holders, the Minister assured the delegation that she would speak to the RBI Governor again. “I have told them that I will once again speak to the RBI Governor and convey the sense of urgency and distress that the clients of PMC have expressed before me. I will request him to expedite giving permission for withdrawal of their money,” Sitharaman said.
Earlier, local BJP leaders had a difficult time controlling the angry depositors. Subsequently five account holders were part of the delegation that met Sitharaman. However, after their meeting, the delegation said they were disappointed by her assurances.
“I was not satisfied with what the Minister said. The Minister explained the functioning of these banks and how they are regulated. We are not interested in this. All that we wanted was an assurance that our money should be safe and returned to us,” Harbans Singh, who was part of the delegation, said.
On September 23, the RBI slapped restrictions PMC Bank, a leading co-operative bank headquartered in Mumbai, for various irregularities.
PMC Bank, which has a deposit base of over Rs 11,600 crore, has 137 branches spread across seven states with 81 branches in Mumbai, Navi Mumbai, Thane and Palghar regions, 10 branches in Pune and 12 branches elsewhere in Maharashtra. Over Rs 6,200 crore of the bank’s money is stuck with the HDIL group promoted by the Wadhawans.