Depositors of 35 co-ops won't have DICGC cover

Depositors in 35 multi-state co-operative banks, holding deposits of around Rs 30,000 crore, have become 'ineligible' for deposit insurance following a recent Supreme Court judgment in the Apex Co-operative Bank of Urban Banks of Maharashtra and Goa Vs Maharashtra State Co-operative Bank case.

On October 29 last year, the Supreme Court had ruled that co-operative societies registered under the Multi State Co-operative Societies Act, 1984 and carrying on banking business will not be construed to be co-operative banks. As a consequence, the Reserve Bank of India cancelled the Apex Bank's licence the following day.

As a result of the SC judgment, 35 co-operative banks in India, which are registered under the Multi State Co-operative Societies Act, 1984, do not legally qualify to be co-operative banks with deposit protection under Section 2 of the DICGC Act, 1961.

This section defines eligible credit institutions as a banking company, a corresponding new bank, a regional rural bank, a co-operative bank or a financial institution.

"Almost all the 35 multi-state co-operative banks are running well and are paying their premiums to the DICGC regularly. However, the SC judgment has rendered them 'ineligible' for deposit insurance cover. The implication is enormous. If any of the banks goes bust, the depositors will legally not have the benefit of insurance cover," sources familiar with the development said.

The Reserve Bank of India is pushing the Centre hard to amend the Multi State Co-operative Societies Act, 1984 and 2002, as also the Banking Regulation Act, 1949 to secure the future of the 35 banks. The amendments will ensure that the central bank can issue licence to multi-state co-operative banks.

The DICGC Act also will have to be amended so that multi state co-operative banks are also eligible for insurance cover.