The Lok Sabha on Monday passed a bill that seeks to ensure that account holders will get up to Rs 5 lakh within 90 days of the RBI imposing a moratorium on their banks from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

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The Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 was passed by a voice vote amid an uproar by Opposition parties over various issues, including the Pegasus snooping row and farm laws.

The Rajya Sabha passed the bill last week. Union finance minister Nirmala Sitharaman, in her brief statement, said the legislation will benefit small depositors, including those of the Punjab and Maharashtra Cooperative (PMC) Bank.

The benefits will also accrue to the depositors of 23 cooperative banks, which are in financial stress and on which the Reserve Bank of India (RBI) has imposed certain restrictions, she said.

Sitharaman said the interest of the small depositors will have to be kept in mind, adding that Prime Minister Narendra Modi has increased the insurance amount for them from Rs 1 lakh to Rs 5 lakh and within 90 days of moratorium being declared on a bank and also for those who are already under stress, the money will be available.

Once the bill becomes law, it will provide immediate relief to lakhs of depositors, whose money is parked in stressed lenders such as the PMC Bank and other small cooperative banks.

According to the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and the liquidation process starts.

DICGC, a wholly-owned subsidiary of the RBI, provides insurance cover on bank deposits. At present, it takes 8-10 years for the depositors of a stressed bank to get their insured money and other claims.

Though the RBI and the Centre keep monitoring the health of all banks, there have been numerous recent cases of banks, especially cooperative banks, being unable to fulfil their obligations towards the depositors due to the imposition of a moratorium by the RBI.

Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020.

In September 2019, the RBI superseded the board of the PMC Bank and imposed various regulatory restrictions after financial irregularities came to light.