Stressed Punjab & Maharashtra Co-Operative Bank (PMC Bank) clients will not get insurance coverage up to Rs 5 lakh in the first batch as the multi-state cooperative bank is in the process of being resolved. The deposit insurance and credit guarantee company (DICGC) in the first batch will pay customers of 20 troubled banks except PMC Bank. For the first batch, the mandatory 90-day period ends on November 30.
It should be noted that in June RBI gave its agreement in principle to a consortium of Centrum Financial Services and the fintech start-up BharatPe to acquire the ailing PMC Bank. Completing the bridges for the takeover, the RBI earlier this month granted a license for a small finance bank to the consortium.
Recently, the DICGC stated that it may be necessary to invoke the provisions of Article 18 A (7) (a) of the Deposit Insurance and Credit Guarantee Corporation Act 2021 (Amendment) , in accordance with Article 18 A (7) (a)) of the law, if a troubled bank is under the resolution process, the disbursement period of Rs 5 lakh may be extended by 90 days.
“The Reserve Bank considers it appropriate in the interest to finalize a plan for the merger of the insured bank with another banking institution or a plan of compromise or arrangement or reconstruction with regard to this insured bank, and communicates to the Company accordingly, the date on which the Company will be liable to pay each depositor of this insured bank may further be extended by a period not exceeding ninety days ”, he declared.
In September 2019, the RBI replaced the board of directors of PMC Bank and subjected it to various regulatory restrictions after detecting certain financial irregularities, concealment and false declaration of loans granted to property developer HDIL.
The Reserve Bank of India (RBI) had imposed restrictions on the withdrawal of deposits from these troubled banks. Of the 20 banks, 10 are from Maharashtra, five from Karnataka and one from Uttar Pradesh, Kerala, Rajasthan, Madhya Pradesh and Punjab.
Last year the government increased deposit insurance coverage five-fold to Rs 5 lakh. The improved deposit insurance coverage of Rs 5 lakh went into effect on February 4, 2020. Each bank paid 10 paise as insurance premium per Rs 100 of deposit. It was increased to 12 paise per Rs 100 in 2020. It cannot exceed 15 paise at any time per deposit of Rs 100.
It should be noted that the increased deposit insurance coverage of Rs 5 lakh is effective from February 4, 2020. The increase was made after a gap of 27 years as it has been static since 1993.