Co op bank proposed Rs. 5 Lakh cover to deposits, risk based premium

The cooperative bank may have a good news for you. If you have deposits with the bank, you may get an insurance cover on the deposits too. Recently, one of the largest NGO in the cooperative sector has suggested a higher insurance cover on the deposits of Banks. It suggested banks to migrate to a risk based premium model. It proposed to migrate after three years which would be enough time for the banks to get prepared for the risk based premium model.

A representative of the Sahakar Bharati wrote a letter to the Finance minister in this matter. Sahakar Bharti is connected with more than 20,000 co-operatives across India. In the letter, he suggested that the co op banks should increase the deposit limits. It proposed to increase the individual account holders’ deposit insurance limit upto 5 lakh. Currently the limit of the insurance cover of deposits of individual account holders is 1 lakh. For institutional customers, he suggested to raise to 25 lakhs.

In 1993, the insurance cover was increased to 1 lakh, which was 30,000 earlier. Since then the bank is providing 1 lakh insurance cover on these deposits. After the collapse of Punjab & Maharashtra Co-operative Bank, many have same belief that this limit needs an increase now.

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

As per the sources and the interaction between the team of Sahakar Bharati and various stakeholders, the NGO has asked 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. Sahakar Bharati believes that there should be a special reserve in case of any fraud by the depositors, so DICGC should create a separate reserve keeping in mind depositors of banks.

Sahakar Bharati office bearers have had detailed interactions 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 this matter.

Along with other matters, Sahakar Bharti said that banks should be allowed to get additional insurance cover which would be extra than the limit against the payment of extra premium. Sahakar Bharati is an NGO which is operative in more than 400 districts.

As per the letter, on consideration of the profile of the banking sector of India, It is estimated that 75 per cent of the banks in India, will never fail. These include government-owned lenders, systematically important institutions and a large number of foreign banks.

Under the circumstances, the believes that there may not be an immediate requirement to revise the premium on deposit. The letter sent to Finance minister, 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.