No cover for multi-state co-op deposits

The Deposit Insurance Guarantee Corporation of India (DICGC) has sent a letter to multi state co-operative banks (banks that are based in Gujarat but have branches in other states), stating that their deposits are not eligible for insurance cover under provisions of the DICGC Act, 1961, and they should display copies of this letter at all branches of the banks.

The Gujarat Urban Co-operative Banks' Federation (GUCBF) has approached the Gujarat High Court, seeking interim relief from the letter. The matter can be resolved only in the next session of Parliament, where the United progressive Alliance (UPA) government is expected to amend provisions of the Multi State Co-operative Societies Act.

DICGC, in the letter dated July 14, 2004, has told the banks that since they are registered under the Multi-State Co-operative Societies Act (MSCS Act), 2002, the provisions of this act do not comply with the eligibility requirement for deposit insurance cover under section 2(g)(g) of the DICGC Act, 1961.

"Therefore the deposits of your bank are not eligible for insurance cover under the provisions of DICGC Act, 1961. The premium received from your bank has been kept in the sundry deposit account of the corporation and will be processed only after the Co-operative Societies Act, under which your bank is registered, is amended to comply with requirements of sections 2(g)(g) of the DICGC Act 1961," says the letter to multi state co-operative banks.

While two of the eight multi state co-operative banks of Gujarat "" Madhavpura Mercantile Co-operative Bank and Co-operative bank of Ahmedabad "" have already gone weak, the remaining are financially sound.

The implication of the letter is that if any of these banks goes weak, deposits of up to Rs one lakh will not be insured with the DICGC.

The DICGC letter is a fallout of a Supreme Court order in a case involving two banks in Maharashtra.

Gujarat Urban Co-operative Banks' Federation has said the Supreme Court judgement delivered about a year ago in the Apex Bank of Maharashtra and Goa case, does not apply to multi-state co-operatives in the state and the question of these banks not having insurance cover of the RBI subsidiary DICGC does not exist.

However, sources in the banking industry said irrespective of the Supreme Court judgement, multi-state co-operative banks in the state have been collecting deposits from people without having an insurance cover from the DICGC.

Sources said the DICGC, in a circular to multi state co-operative banks, asked them to provide information on the insurance premium that they have been paying to DICGC.