The banking system handles the savings of the common man. Protecting bank and bank's depositor is the main objective of the Reserve Bank, which is why the credibility of the banking system is maintained today. But the revelation of scams like Yes Bank, PMC Bank has once again created an atmosphere of mistrust in the banking industry. While insurance among deposits may not be the solution to some of the scams, it can be prevented only if the perpetrators of these scams are severely punished and held accountable to all concerned, including the Reserve Bank.
After the Reserve Bank of India (RBI) imposed a moratorium on Punjab and Maharashtra Co-operative Banks, not only the depositors of PMC Bank but also the best banks in the banking industry were left speechless. Because in the market, new rumors like 'this bank sinks today, that bank sinks tomorrow' were burning like wildfire in that age of social media. The only thing that reassures the depositors is the protection of insurance.
The Deposit Insurance Act was passed in 1961. It came into force on January 1, 1962. Initially, the insurance was available only to depositors in India from commercial banks, SBI and its associate banks and foreign banks. It became available to depositors in co-operative banks after the amendment of the Act in 1968. Regional Rural Banks, Small Finance Banks, Payment Banks were classified as Commercial Banks. Therefore, insurance cover is also available to the depositors of that bank. On January 1, 1968, this protection was available only to depositors up to Rs. 5,000. Today, deposits of up to Rs 5 lakh are available.
If we look at the history of the last several years, it will be noticed that even though all the banks are paying premiums to get insurance cover, in reality, only the deposits in civic co-operative banks have to be covered because, the same banks go into liquidation. This possibility is not applicable in the case of nationalized banks as these banks are owned by the Government of India. Under no circumstances will the government allow these banks to go into liquidation. The experience of private banks is no different.
Private banks are also facing difficulties as the government has sometimes merged them into public sector and sometimes private sector banks. The latest example is Yes Bank. After the bank got into trouble, the government intervened and forced SBI to take the initiative and save Yes Bank by involving some other private banks. Some of the troubled civic co-operative banks have been saved by merging them with another civic co-operative bank. Today, more than 40 civic co-operative banks have been given moratorium. During the moratorium period, if the financial condition of those banks does not improve or there is no merger with any other bank, those banks eventually go into liquidation. Within a period of three months, their claims are submitted to the Deposit Insurance and Credit Guarantee Corporation by the administrators appointed by the board of directors or by the liquidator. They are approved by the corporation in the next 2 months
The banking system handles the savings of the common man. Protecting those savings and general depositors is the main objective of this corporation, the Reserve Bank, which is why the credibility of the banking system is maintained. But some such scams were exposed which once again created an atmosphere of mistrust in the banking system. Deposit insurance may not be the only solution, but it can be stopped only if strict action is taken against the scammers and all concerned, including the Reserve Bank, are held accountable. That is why all the customers of the bank should be constantly aware
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