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DICGC not to cover co-op bank deposits

Our Regional Bureau  |  Ahmedabad 

The (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 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 (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 Act, 1961.
"Therefore the deposits of your bank are not eligible for insurance cover under the provisions of 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.
"Even if they are paying insurance premium to the DICGC, this does not mean that the depositors are covered under the insurance, because there is the question of whether there is a licence or not," said a source in the banking industry.
The co-operative banking establishment in Gujarat is divided over whether multi-state co-operative banks have a licence or not, in view of the Supreme Court ruling.
Even officials of multi-state co-operative banks say there is room for different interpretations of the ruling and it is learnt that the RBI has taken up the matter with the central government.
Meanwhile, Jairambhai Patel, chairman of the MMCB, said Union minister for agriculture and co-operation Sharad Pawar had assured the banks that necessary amendments will be made in the Act to ensure that multi-state co-operative banks are covered under DICGC insurance.

First Published: Fri, August 06 2004. 00:00 IST