Efforts are made in this write-up to highlight the correct status of interim payment by DICGC to insured bank depositors, without getting too much into legal Jaron. Print media has been interchangeably using the terms ‘directions’ and ‘moratorium’. Earlier the claims submitted by the official liquidator (after the bank is delicensed) on behalf of eligible depositors were paid by DICGC after due processing (whole process bank’s liquidation to settlement used to take many years) and there had been no provision of interim payments.
The amendment has been made to the DICGC Act,1961 to provide interim payments to depositors subject to certain provisions stipulated in the DICGC (Amendment) Act, 2001.
Before highlighting the provisions, I wish to mention the difference between the issue of directions and granting moratorium by the Central Govt on the application of RBI
Section 35A(1) in BANKING REGULATION ACT,1949 grants powers to Reserve Bank of India (RBI) to issue directions to banking companies generally or to any banking company in particular for reasons specified in the section and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. RBI can extend the period of such directions from time to time.
Section 45 in BANKING REGULATION ACT,1949 grants power to RBI to apply to Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution of amalgamation.
Central Government, after considering the application made by the Reserve Bank may make an order of moratorium staying the commencement or continuance of all actions and proceedings against the company for a fixed period on such terms and conditions as it thinks fit and proper and may from time to time extend the period so however that the total period of moratorium shall not exceed six months.
To provide interim relief mainly to thousands of Punjab Maharashtra Coop Bank depositors, the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 was passed ensuring that insured account holders will get a maximum of Rs 5 lakh within 90 days of RBI issuing any directions thereby imposing restrictions (under the provisions of the Banking Regulation Act, 1949), provided such directions imposing restrictions, prohibition, order or scheme provides for restrictions on depositors of such bank from accessing their deposits. Some of the provisions like 18A(1)(7) appear to have been framed specifically keeping PMC bank into account.
Further, this provision is made applicable prospectively to all cases if such order or scheme is made before the enactment of the Bill, but the business of the insured bank remains suspended at the time of enactment.
THE DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (AMENDMENT) ACT, 2021 NO. 30 OF 2021 was notified on behalf of MINISTRY OF LAW AND JUSTICE, Legislative Department EXTRAORDINARY PART II - Section 1 Gazatte of India FRIDAY, AUGUST 13, 2021
*Relevant text from Gazattee is attached to benefit readers interested in perusing (Annexure-1).
Finance ministry notification issued dt: 27-08-2021 states: "In exercise of the powers conferred by sub-section (2) of section 1 of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 (30 of 2021), the Central Government hereby appoints the 1st day of September 2021, as the date on which the provisions of the said Act shall come into force from 01-09-2021”
As mentioned above Act provides bank depositors time-bound access to their insured deposit amount, in case they are restricted from accessing their bank deposits.
The provisions stated that the Corporation will be liable to pay the insured deposit amount to depositors on an interim basis.
Under the amended Act, the DICGC (Corporation) is liable to pay the insured deposit amount (as above) to depositors of an insured bank. Such liability arises when an insured bank undergoes: (i) liquidation, i.e., sale of all assets on closing down of the bank, (ii) reconstruction or any other arrangement under a scheme, or (iii) merger or acquisition by another bank, i.e., transferee bank. Once the Corporation makes the interim payment to the depositors, the liquidator or the insured or transferee bank (as the case may be) becomes liable to repay the same amount to the Corporation. The amount paid by the Corporation in respect of a deposit reduces its liability against the deposit by that amount.
Interim payment to depositors: The Bill clearly states that the Corporation will be liable to pay the insured deposit amount to depositors on an interim basis. The liability will arise on the date the depositors are restricted from accessing their bank deposits. This liability will arise if such restrictions get imposed under any order or scheme under the Banking Regulation Act, 1949. This will also apply if such order or scheme is made before the enactment of the Bill, but the business of the insured bank remains suspended at the time of enactment.
The Corporation will not be liable to make ‘the interim payment’ if: (i) the Reserve Bank of India (RBI) removes the restrictions put on the bank for payment to depositors, and (ii) the insured or transferee bank is in a position to pay the depositors without any restrictions.
Once the Corporation makes the interim payment to a depositor, the value of his deposit in the insured bank will reduce by the amount paid. The insured bank will then be liable to pay that amount to the Corporation.
Timeline for interim payment: Sec 18A(1), 18A(2), 18A(3), 18A(4) deal with the timelines
It mandates the Corporation to pay the insured amount (subject to the limit as above) to the depositors within 90 days of the date such liability arises. Within the first 45 days, the insured bank must furnish the details of all outstanding deposits to the Corporation. Within 30 days of the receipt of details, the Corporation will verify the authenticity of the claims and check with each depositor if they are willing to receive the insured deposit amount. Within 15 days of the verification, the Corporation must make the payment to such depositors.
The DICGC (Amended) Act also provides a mode of settlement of interim payments made by DICGC by the insured bank and interest penalties etc for the delay in repayment.
Sec 18A (7) provides powers to extend this timeline by another 90 days under certain circumstances (like finalizing a scheme for the reconstruction, arrangement, merger, or acquisition of the insured bank). In such a case, the DICGC (Corporation) becomes liable to pay the depositors during an extended timeline.
In the end, I wish to reiterate that this interim norm does not apply only to PMC bank but to all banks kept under directions of RBI (or bank under moratorium) where depositors are restricted from accessing their bank deposits. Further, interim payment norms may not apply to delicensed bank/s and/or under liquidation. On date as per my understanding, there are 100 odd such banks under directions under Sec 35A(1) of which in the majority of cases all depositors are restricted from accessing their bank deposits, except meager sums.
Annexure-I
An important aspect of this amendment is the insertion of new section 18A: Liability of Corporation to make an interim payment to depositors of the insured bank 18A.
(1) Where, in respect of an insured bank, -
(i) any direction is issued or any prohibition or order or scheme is made under any of the provisions of the Banking Regulation Act, 1949; and
(ii) such direction, prohibition, order, or scheme provides for restrictions on depositors of such bank from accessing their deposits,
then, without prejudice to the provisions of sections 16 to 18, the Corporation shall, on the date on which such direction, prohibition, order or scheme takes effect, become liable to pay to every such depositor an amount equivalent to the amount payable by the Corporation to the depositor under section 16.
(2) A list showing the outstanding deposits of each depositor of the insured bank, as on the date on which the direction, prohibition, order or scheme referred to in sub-section (1) takes effect, shall be furnished by such insured bank within forty-five days of such date of effect, in such form and manner as may be specified by the Corporation and certified to be correct by the chief executive officer of the insured bank.
(3) The Corporation shall, within thirty days of the date of receipt of the list under sub-section (2), verify, through an online platform, to the extent possible, or in accordance with such procedure, as may be prescribed, the genuineness and authenticity of the claims made therein, and ascertain the willingness of each depositor to receive the amount due to him out of his deposit in the insured bank.
(4) Subject to the provisions of sub-section (7), the Corporation shall, before the expiry of fifteen days from the date of completion of the verification under sub-section (3), pay to the depositors who have affirmed their willingness thereunder, the amount payable under sub-section (1) either directly, or get it credited in the account of the depositors through the insured bank:
Provided that the total period of time between the date when the Corporation becomes liable to pay to the depositor and the date of payment to the depositor shall not, subject to the provisions of sub-section (7), exceed ninety days:
Provided further that any amount paid by the insured bank to the depositor during the period between the date on which the direction, prohibition, order or scheme referred to in sub-section (1) takes effect and the date of payment to the depositor, shall be appropriately reckoned by the insured bank before crediting such amount in depositor's account.
(5) Any amount paid by the Corporation under sub-section (4) in respect of a deposit shall, to the extent of the amount so paid, discharge the insured bank from its liability to the depositor in respect of that deposit, but the insured bank shall become liable to the Corporation in respect of the amount paid by the Corporation.
(6) Where, in respect of an insured bank, -
(i) any direction, prohibition, order or scheme under any of the provisions of the Banking Regulation Act, 1949 providing for suspension of business of the insured bank is already in force as on the date of commencement of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021; and
(ii) such direction, prohibition, order or scheme provides for restrictions on the amounts to be paid by the insured bank to each of its depositors, then, notwithstanding anything contained in any other law for the time being in force, the Corporation shall, on and from the date of commencement of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, become liable to pay to each depositor of such insured bank, an amount equivalent to the amount payable by the Corporation to the depositor under sub-section (1) of section 16, and the time limit specified in subsections (2) to (4) herein for such payment shall be computed from that date.
(7) Notwithstanding anything contained in sub-section (1) to (6), in cases where, -
(a) the Reserve Bank finds it expedient in the interest of finalizing a scheme of amalgamation of the insured bank with other banking institution or a scheme of compromise or arrangement or of reconstruction in respect of such insured bank, and communicates to the Corporation accordingly, the date on which the Corporation shall become liable to pay every depositor of such insured bank may further be extended by a period not exceeding ninety days;
(b) the restrictions on payment to depositors are removed by the Reserve Bank at any time before payment to depositors by the Corporation under sub-section (4), and the insured bank or the transferee bank is in a position to make payments to its depositors on demand without any restrictions, the Corporation shall not be liable to make payment to the depositors of such insured bank.
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