Even as the public sector banks in the country struggle to save their net worth from loan write-offs, there is some good news for depositors. All this while the depositors in Indian banks took solace from the fact that hardly any went bankrupt. Even in cases like Global Trust Bank (GTB) which was acquired by Oriental Bank of Commerce (OBC), the interest of the depositors was safeguarded. It was the shareholders of both GTB and OBC who had to bear the losses. Thus the RBI's focus on prioritizing depositor interest is well known. However, a new set of regulations may keep the depositors insulated even in case of bankruptcy filed by the bank.
The RBI has proposed a new framework for the bankruptcy of financial institutions. One that will align the country with international standards. The reason for the same is that the depositors' funds are grossly under insured. Fathom this. As per Economic Times, the Deposit Insurance and Credit Guarantee Corporation of India held Rs 377.7 bn as of September 30 2013. This was barely 1.7% of insured deposits. The Corporation charges an insurance premium of Rs 0.1 per Rs 100 deposited. And not surprisingly, both the premium rate as well as the amount insured was last revised over a decade ago! Thus with such archaic laws, it is only understandable that the central bank should ask for revision in framework. In fact that could also lead to banks getting more proactive in bad loan recoveries.
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