The Deposit Insurance Credit Guarantee Corporation (DICGC) Amendment Bill, which was approved by the Rajya Sabha on Wednesday amid Opposition uproar, will help small depositors, including those of the crisis-ridden PMC Bank, finance minister Nirmala Sitharaman said.
The Bill proposes to give customers access to their deposits up to Rs 5 lakh within just 90 days if their stressed banks are placed under moratorium. The Bill covers all banks, including co-operative banks.
Similarly, the Upper House also cleared the Limited Liability Partnership (Amendment) Bill 2021, which seeks to decriminalise a dozen offences and enable such entities to enjoy the same benefits as large companies. Hundreds of start-ups, chartered accountant firms and others that are registered as LLPs are expected benefit from this move.
The DICGC (amendment) Bill will cover 98.3% of depositors and 50.9% of deposit value in the banking system, way above the global level of 80% and 20-30%, respectively, Sitharaman had said last week.
Also, as per the extant system, customers of a fallen bank could lay their hands on the insured deposit amount only after the bank’s liquidation, which would take even 8-10 years. So, the amendments were brought in to ensure that customers, especially the small ones, have time-bound access to the insured amount to meet financial exigency. Last year, the government had raised the limit of bank deposits insured under the DICGC Act to Rs 5 lakh from Rs 1 lakh.
The DICGC is a wholly-owned arm of the Reserve Bank of India (RBI), which offers deposit insurance. If a customer’s deposit amount crosses Rs 5 lakh in a single bank, only up to Rs 5 lakh, including the principal and interest, will be paid by the DICGC if the bank turns bankrupt.
Before the hike last year, the government had kept the deposit cover unchanged at Rs 1 lakh since May 1993, when it was raised from Rs 30,000 after the security scam in 1992 had led to the liquidation of Bank of Karad in Maharashtra.
As for decriminalising certain offences, once the LLP (amendment) Bill is cleared by both the houses of Parliament, only 22 penal provisions, seven compoundable offences and non-compoundable offences will remain.
After the Cabinet approval to this Bill last week, Sitharaman said: “Between large companies that are well-regulated and small proprietorships, LLPs did not have benefit of either simplified regulation or ease of practice under proprietorship. With Wednesday’s Cabinet decision, we are bridging the gap and making LLPs more attractive, easy to handle.”
The corporate affairs ministry has said that the objective of this move is to remove criminality of offences from business laws where no mala-fide intentions are involved.