The government’s decision to allow bank depositors to access funds under a 90-day moratorium is expected to benefit the cooperative banking sector the most, as this segment has seen the most moratoriums and liquidations over the past year. the last decade.
Poor governance, lack of technology and professional management, political interference and risky assets or loan mix have resulted in a shrinking of the cooperative banking space over the past decade.
The Reserve Bank of India (RBI) was quick to take regulatory action against cooperative banks by putting them on a moratorium and also launching the liquidation exercise if the assets (loans) are not enough to cover the liabilities. .
Cabinet approval of the Deposit Insurance and Credit Guarantee Company Bill, 2021, allows depositors of moratorium banks to access their money in savings accounts, deposit accounts current and fixed within 90 days.
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It is not known whether all of the insured money would be distributed at once or whether some of the funds would be released.
Currently, the DICGC insures depositors up to Rs 5 lakh per customer and per bank for both principal and interest.
The premium of Rs 12 paise per Rs 100 deposit is paid by the banks as a premium to the DICGC. The company covers all banks, including the cooperative banking sector.
“Public and private commercial banks, which control most of the banking sector’s deposits, would end up subsidizing the cooperative banking sector,” said a banking official.
There aren’t many failures in the public and private banking space. IDBI Bank was bailed out by the Life Insurance Corporation of India. Yes Bank was bailed out by a consortium of banks led by the State Bank of India. Likewise, the RBI had found a suitor (DBS Bank) for the former private bank Laxmi Vilas. There has been no liquidation of public or private banks over the past two decades.
In fact, cooperative banks often face the RBI moratorium and liquidation in some cases.
“The cash flow of the DICGC would also be impacted because they must keep enough liquidity to meet the liabilities,” adds the banker.
The universe of cooperative banks includes all central, state and primary cooperative banks, including urban cooperative banks.
However, primary cooperative societies are not insured by the DICGC.
Currently, the process of obtaining insured money from DICGC is quite long. Sometimes it takes more than three to five years. The moratorium period is also extended and only minimum withdrawals are allowed on a monthly basis.
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