HC order to restore deposit cover

DICGC asked to accept insurance premium from multi state co-operative banks

The Gujarat High Court has ordered the Deposit Insurance Credit Guarantee Corporation (DICGC) to provide insurance cover to the multi state co-operative banks. The HC has also ordered the Corporation to accept the insurance premium from these banks.

Meanwhile, the Gujarat Urban Co-operative Banks Federation (GUCBF) said in a statement on Monday that the Union cabinet met on September 17 and has decided to issue an ordinance 'at the earliest' to ensure all multi state co-operative banks continue to receive DICGC insurance cover for their deposits.

"This was a demand made by the GUCBF, multi state co-operative banks and the national federation. Once the ordinance is issued, all doubts over the status of deposits with multi state co-operative banks will be laid to rest," said GUCBF president R S Patel.

The deposits of up to Rs 1 lakh in co-operative banks are insured by DICGC. The Corporation, on July 14, however, announced that the facility could not be provided to multi state co-operative banks. The announcement was made on the basis of Section 2 (G) (G) of DICGC Act. DICGC also stopped collecting insurance premiums from multi-state banks.

The GUCBF filed a plea with the Gujarat HC, challenging the decision of DICGC. The HC, in its order on September 13, has directed DICGC to continue providing insurance cover to multi state co-operative banks on their deposits as on July 14 (the day DICGC refused to provide the facility).

The High Court has also directed the DICGC to accept premium amount paid by multi state co-operative banks on their deposits after October 1, and to provide the insurance cover.

With regards to insurance on deposits made after July 14, the Court ordered that such deposits would not be eligible to get the insurance cover until the final hearing of the petition.

The multi state banks of Surat have welcomed the HC order.

"DICGC has been collecting premium for the last 35 years and providing the insurance cover to multi state co-operative banks. The refusal to provide insurance cover was like a blow to us," Ashok Raval, general manager, Gujarat Industrial Co-operative Bank, told Business Standard.

"Considering the atmosphere of mistrust in co-operative banking sector at the moment, an adverse order could have harmed the multi state co-op banks," Raval added.

At present, there are 35 multi state co-operative banks in the country. Eight of these banks are based in Gujarat. They are: Rajkot Nagarik Sahakari Bank, Nutan Nagarik Sahakari Bank, Ahmedabad Mercantile Co-operative Bank, Co-operative Bank of Ahmedabad (ABAD Bank), Madhavpura Mercantile Co-operative Bank, Kalupur Commercal Co-operative Bank, Gujarat Industrial Co-operative Bank and Surat Textile Co-operative Bank.