To the relief of investors in distressed banks, the ministry on Wednesday approved amendments to the Deposit Insurance Credit Guarantee Corporation (DICGC) Act, which will make up to Rs 5 lakh available to customers within 90 days of their banks leaving. Placed under a moratorium.
The cabinet also approved amendments to the Limited Liability Partnership (LLP) Act to explain a dozen crimes and enable such companies to enjoy the same benefits as large companies – a decision that is expected to help hundreds of start-ups.
Explaining to reporters, Finance and Corporate Affairs Minister Nirmala Sitharaman, the DICGC (Amendment) Bill will bypass 98.3% of investors and 50.9% of investment value in the banking system at 80% and 20-30% globally.
Last year, the government had raised the limit on bank deposits insured under the DICGC Act from Rs 1 lakh to Rs 5 lakh. The move comes after the Punjab and Maharashtra Co-operative Bank suffered a major setback. Yes Bank and Lakshmi Vilas Bank came under pressure, which led to their reorganization.
The FE reported on March 15 that the government was considering guaranteed access to investments within 90 days.
Once approved by Parliament, the bill will help meet the immediate financial needs of small investors in particular.
DICGC is a wholly-owned subsidiary of the Reserve Bank of India (RBI), which offers investment insurance. It guarantees a deposit account such as Savings, Current, Recurring and Fixed Deposits up to Rs. 5 lakhs for a bank account holder. If a customer’s deposit exceeds Rs. 5 lakhs in a single bank and the bank goes bankrupt only up to Rs. 5 lakhs including capital and interest, DICGC will pay.
After the security fraud of 1992, which led to the liquidation of the Bank of Karad in Maharashtra, the government revised the deposit to Rs 1 lakh from May 1993 after raising it to Rs 30,000 from May 1993.
Before last year’s limit, 92% of total accounts in India were covered by deposit insurance but only 28% of the total deposits in the banking system.
The Cabinet also approved a proposal to expand the definition of a small LLP. Such firms up to 5 crores and annual turnover up to 50 crores will be divided into small LLPs, the limit was fixed at Rs 25 lakh and Rs 40 lakh respectively.
Once the LLP (Amendment) Bill is passed by Parliament to explain certain offenses, only 22 penalties, seven criminal offenses, and unconstitutional offenses remain.
Among large companies that are well-regulated and small-ownership, LLPs did not have the advantage of simple control or ease of training under ownership.
The Ministry of Corporate Affairs said the move was aimed at removing crime from business laws that have no ill intentions. The Cabinet also approved a memorandum of understanding signed between the Gandhinagar-based International Institute of Financial Services Centre Authority (IFCA) and the International Organization of Securities Commissions and the International Association of Insurance Supervisors 124 signatures.