New Delhi: In a major relief for the bank depositors, the Union Cabinet today cleared amendments in the DICGC Act for compulsory payment of insurance claims up to Rs 5 lakh within 90 days, the amendments will also cover those stressed banks, such as PMC Bank of Maharashtra, that have been placed under the payment moratorium by the Reserve Bank of India. “The Deposit Insurance and Credit Guarantee Corporation Bill 2021 has been cleared by the Cabinet today,” finance minister Nirmala Sitharaman informed the reporter after the cabinet meeting chaired by the Prime Minister Narendra Modi in New Delhi.
The Deposit Insurance and Credit Guarantee Corporation covers all deposits, including fix deposits and current accounts of all commercial banks. It basically means that if a depositor has more than one account in a bank, which may include savings account, FDs and other types of accounts, then the total insurance coverage will remain Rs 5 lakh if the cumulative deposits exceed the ceiling of Rs 5 lakh. However, in case of failure of a bank, the amount of up to Rs 5 lakh will be paid within three months.
Another major aspect of the decision is that it will also cover those failed banks such as Punjab and Maharashtra Cooperative Bank, which was placed under moratorium by the Reserve Bank of India in September 2019 and depositor’s money is stuck. Under the law amendments cleared by the Cabinet today, first 45 days will be given to the bank in distress to collect the money where it has claims and another 45 days will be given to the DICGC to transfer the money to the depositors.
Nirmala Sitharaman said the scheme was better than other similar schemes in the world as it covers 98.3% of all deposit accounts in the country. “In terms of value, more than 50.9% of the deposit value will be covered in India,” she said, adding that the global average for such an insurance package covers just 80% for the accounts and 20-30% of the deposit value. The finance minister also highlighted the compressed time for settlement of claims in case of failure of a bank.
“Global experience suggests that it takes 8-10 years for the recovery of liquidation of the entity. Whereas in India, the process will be complete in 90 days and the insurance cover will be effected even if there is moratorium on the payments from the bank,” said the finance minister. “The repayments will not wait for the resolution or lifting of the moratorium on the bank,” she added.
LLP Amendment Bill
In a decision that will increase the ease of doing business for small businesses who opt for limited liability partnership route instead of incorporating a private limited company, the government cleared amendments in the Limited Liability Partnership Act of 2008. Under the existing law, there are 24 penal provisions which include 21 compoundable penal provisions and 3 non-compoundable provisions.
“The total number of penal provisions in the act will be reduced to 22, number of compoundable to be only 7, non compoundable to be 3, number of defaults to be dealt under the IAM mechanism will be 12 and a penal provision will be completely omitted,” Sitharaman informed the reporters. She said after the amendment total 12 offences will be decriminalised for LLPs and 3 sections will be omitted. “We are making LLPs far more attractive and easy to handle so many of the startups which prefer the LLP model can also experience the ease of doing business opportunity,” noted the finance minister.
Small LLPs
The Cabinet also cleared the proposal to increase the contribution and turnover limit for a LLP to qualify as a small LLP from Rs 25 lakh for partners’ contribution and Rs 40 lakh for the LLP’s turnover. “What we are saying is that if the contribution is Rs 5 crore or less or turnover is less than Rs 50 crore then it will be called a small LLP.
