Co-op banks’ body proposes Rs 5 lakh cover for deposits, risk-based premium

Mumbai: The largest NGO in the cooperative sector has proposed a higher insurance cover for bank deposits and a migration to a risk-based premium model, after giving banks at least three years to prepare themselves.

In a letter to FM Nirmala Sitharaman, representatives of Sahakar Bharati, which is associated with more than 20,000 co-operatives across India, have suggested raising the deposit insurance limit for individual account holders to Rs 5 lakh from Rs 1 lakh while that for institutional customers to Rs 25 lakh.

The cover was raised from Rs 30,000 to Rs 1 lakh in 1993, and in the wake of the collapse of Punjab & Maharashtra Co-operative Bank, there is a widely shared belief that the limit should be increased.

The risk-based premium should be introduced irrespective of the nature of ownership of bank, according to Sahakar Bharati. “This will enable depositors to pick and choose bank(s) of their choice for placement of deposits,” said the letter.

Based on interactions that a team of Sahakar Bharati had with various stakeholders, the organisation has called for a special provision in the Deposit Insurance & Credit Guarantee Corporation Act, 1961 to protect the interests of depositors of fraud affected banks – such as PMC Bank and Pen Urban Co-op Bank. The organisation believes that DICGC should create a separate reserve keeping in mind depositors of banks which fail on account of frauds.

Sahakar Bharati office bearers have had detailed deliberations with bankers, individual as well as institutional depositors such as educational institutions, temples, hospitals, charitable and social institutions, co-operative housing societies, law makers, chartered accountants, social activists, and trade unionists on the subject.

Among other things, the NGO, which has a presence in over 400 districts, has said in its representation that banks should be permitted to obtain additional insurance cover over and above the limit against payment of extra premium.

Considering the profile of the Indian banking sector, it is estimated that 75 per cent of the banks (including government-owned lenders, systematically important institutions and a large number of foreign banks) are unlikely to ever fail, said the letter. Under the circumstances, the NGO feels there may not be an immediate need to revise the premium on deposit.

The letter was signed by Dr Uday Joshi (national general secretary of the Sahakar Bharati), Ramesh Vaidya (president) and Satish Marathe, founder member of the NGO and director of Reserve Bank of India.