DICGC to reply to HC order: deposit cover

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is preparing to reply to a notice issued by the Gujarat High Court on a petition filed by the Gujarat Urban Co-operative Banks' Federation (GUCBF) challenging a July 14 letter of DICGC. DICGC had stated that the deposits of multi state co-operative banks are not insured with it.

A DICGC official stated that the reply will be filed in the Gujarat High Court.

The high court had stayed the implementation of the DICGC circular until it gives an order in this regard.

Meanwhile, the DICGC, a subsidiary of the Reserve Bank of India (RBI), has termed the allegations of the Ahmedabad-based Nutan Nagarik Sahakari Bank regarding the financial condition of DICGC, as baseless.

NNSB chairman Parthivkumar Adhyaru on Tuesday had alleged that he suspected the DICGC was refusing insurance cover to deposits of multi state co-operative banks because its financial condition was not stable.

"We are a wholly owned subsidiary of the RBI and are basically doing social service to the banking sector. There is simply no question of shortage of funds as we can approach the RBI for funds whenever we require," said a senior DICGC official.

In the meantime, the National Federation of Urban Co-operative Banks (NFUCB) has said that the DICGC is just a corporation and not a regulatory body.

"It is a contention of DICGC that deposits of multi state co-operative banks are not insured and this is open to question. The Multi State Co-operative Societies Act was amended two years ago, and DICGC should have pointed it out earlier," said G Krishna, chief executive, NFUCB.

Krishna added that there is no need for multi-state co-operative banks to place copies of the DICGC letter at all branches, as the body has no powers to instruct banks.

"The question of following instructions does not arise at all. In either case, the necessary changes in the law will be made soon and final touches are being given to these," he said. Officials at the Central Registrar of Co-operatives, where all multi state co-operative banks are registered, said there are issues over banking operations and the matter has been taken up with the RBI.

"We have taken up the matter with the RBI," said an official of the Central Registrar of Co-operatives.

DICGC, in the letter dated July 14, told banks that since they are registered under 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 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," said the letter to the multi state co-operative banks.