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Changes to DICGC Act: Deposit insurance coverage cowl will get stronger

The company affairs ministry has stated that the target of this transfer is to take away criminality of offences from enterprise legal guidelines the place no mala-fide intentions are concerned.

In a reduction to depositors of harassed banks, the Cabinet on Wednesday cleared amendments to the Deposit Insurance Credit Guarantee Corporation (DICGC) Act, which is able to allow prospects to have entry to their deposits as much as Rs 5 lakh inside simply 90 days, if their banks go bust and are positioned underneath moratorium.

The Cabinet additionally accepted amendments to the restricted legal responsibility partnership (LLP) Act to decriminalise a dozen offences and allow such entities to get pleasure from the identical advantages as massive firms—a choice that’s anticipated to assist a whole bunch of start-ups, amongst others.

Briefing reporters, finance and company affairs minister Nirmala Sitharaman stated the DICGC (modification) Bill will cowl 98.3% of depositors and 50.9% of deposit worth within the banking system, manner above the worldwide degree of 80% and 20-30%, respectively.

There have been cases when 8-10 years used to lapse till a buyer of a fallen financial institution might lastly lay their arms on the insured deposit quantity, that too, solely after the financial institution’s liquidation, the minister stated. The Bill can be offered within the present session of Parliament for clearance, she added. It will cowl all kinds of banks, which additionally embrace regional rural banks and co-operative banks.

Last yr, the federal government had raised the restrict of financial institution deposits insured underneath the DICGC Act to Rs 5 lakh from Rs 1 lakh. The transfer got here after Punjab and Maharashtra Co-operative (PMC) Bank confronted a grave fraud. Subsequently, Yes Bank and Lakshmi Vilas Bank, too, got here underneath stress, resulting in their restructuring.

FE had reported on March 15 that the federal government was contemplating assured entry to deposits in 90 days.

Once cleared by Parliament, the Bill will assist particularly small depositors meet pressing monetary exigencies.

The DICGC is a wholly-owned arm of the Reserve Bank of India (RBI), which presents deposit insurance coverage. It insures deposit accounts, similar to financial savings, present, recurring, and stuck deposits as much as a restrict of Rs 5 lakh per account holder of a financial institution. If a buyer’s deposit quantity crosses Rs 5 lakh in a single financial institution, solely as much as Rs 5 lakh, together with the principal and curiosity, can be paid by the DICGC if the financial institution turns bankrupt.

The authorities had stored the deposit cowl unchanged at Rs 1 lakh since May 1993, when it was raised from Rs 30,000 after the safety rip-off in 1992 had led to the liquidation of Bank of Karad in Maharashtra. The hike then was aimed toward placating indignant and anxious depositors of this non-public financial institution so {that a} run on even different banks might be prevented.

Before the hike within the restrict final yr, deposit insurance coverage coated about 92% of the overall variety of accounts in India however solely 28% of the overall deposits with the banking system.

The Cabinet has additionally cleared a proposal to broaden the definition of a small LLP. Such entities with contributions (from companions) as much as Rs 5 crore and annual turnover as much as Rs 50 crore can be categorised as small LLPs; earlier, these limits have been set at Rs 25 lakh and Rs 40 lakh, respectively.

As for decriminalising sure offences, as soon as the LLP (modification) Bill is cleared by Parliament, solely 22 penal provisions, seven compoundable offences and non-compoundable offences will stay.

Sitharaman stated: “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 company affairs ministry has stated that the target of this transfer is to take away criminality of offences from enterprise legal guidelines the place no mala-fide intentions are concerned.

The Cabinet additionally accepted a memorandum of understanding (MoU) signed between the Gandhinagar-based International Institute of Financial Services Centres Authority (IIFCA) and the International Organization of Securities Commissions and International Association of Insurance Supervisors, which is likely one of the largest multilateral boards with 124 signatories.

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