The central bank also sacked the bank's board and appointed a manager, The DICGC, a wholly-owned Reserve Bank subsidiary, offers insurance cover on bank deposits
Due to the five-fold hike in deposit insurance to some 5 lakh, the Reserve Bank does not see any major impact on banks ' balance sheets.
Following the failure of a number of cooperative banks, with the city-based PMC Bank being the latest and largest last year, the budget allowed Deposit Insurance and Credit Guarantee Corporation (DICGC) to increase the coverage of deposit insurance from 01 lakh to 5 lakhs.
"The premium is something that we consider is going to rise for the time being from 10 paise to 12 paisa per 100. So, it is not likely that the impact on banks ' balance sheets will be much," RBI Deputy Governor B P Kanungo told reporters during the post-policy presser.
The hike in deposit insurance coverage was a long pending demand from bank depositors and it came to prominence recently after the Punjab & Maharashtra Cooperative Bank (PMC) crisis. It can be noted that more than 30 cooperative banks in Maharashtra alone went up belly in 2019 alone.
The DICGC, a wholly owned Reserve Bank subsidiary, provides insurance cover on bank deposits. The DICGC currently provides a depositor with •1 lakh insurance regardless of the amount of the deposit, in case the lender fails or becomes liquidated.
The corporation insured each bank depositor up to a maximum of 1 lakh for both the principal and the interest amount held by the depositor as on the liquidation / cancelation date of the license of a bank or the date on which the amalgamation / merger scheme comes into force.
It can be remembered that back in 2009, the Raghuram Rajan Committee on Financial Sector Reforms recommended strengthening the DICGC's capacity, a more explicit system of prompt, corrective action, and more risk-based deposit insurance premiums.
On the PMC Bank crisis, Das said the administrator and the advisory committee now have more clarity regarding the bank's financial position and they are working out the next course of action.Since September 23, 2019, the multi-state cooperative bank has been put under an RBI administrator, after the regulator found financial irregularities including loan reporting and non-performing assets of real estate developer HDIL.
In September, it was reported that the actual exposure of the cooperative lender to the bankrupt HDIL exceeded 6,500 crore, representing 73% of all its assets of 8,880 crore.
While welcoming the budget proposal to make the RBI the full regulator for cooperative banks, deputy governor MK Jain said that handling the RBI's full regulatory control of cooperatives would strengthen the regulator's hands.
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