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MUMBAI: The Bombay high court has upheld the validity of the Rs1lakh rule that states that if a bank goes bust, its depositors will get up to a maximum of Rs 1 lakh from the banking insurance system. A division bench comprising Justice Abhay Oka and Justice Mahesh Sonak dismissed petitions filed by a number of credit societies that had deposited over Rs 20 crore in the Vasantdada Shetkari Sahakari Bank, which was ordered to be wound up after the Reserve Bank of India cancelled its banking licence. The high court bench pointed out that the scheme was framed to ensure security to small depositors — as of 2009, around 89% of the deposits in the banking system in India were less than Rs 1 lakh. "The purpose of the deposit insurance scheme is to afford some cover to small depositors by providing them with a safety net so that the entirety of their deposits are not wiped out, when the banks in which they are held, go into liquidation," said the judges. "The provisions of the (law), therefore, have to be construed, not in the context of any particular bank or particular fact situation, but rather from the context of protection afforded to numerous small depositors and the entire banking system in the country," they said. Under law, all banks in the country are registered with the Deposit Insurance and Credit Guarantee Corporation (DICC). When a bank is ordered to be wound up the insurance indemnity scheme kicks in — all depositors who have deposits of less than Rs 1 lakh are given the exact amount of their deposits, while all depositors who have more than Rs 1 lakh in deposits in that bank get only Rs 1 lakh. The credit societies claimed that the insurance scheme covers the entire amount so the entire money lost by them has to be returned. They claimed the provisions of the rules were wrongly interpreted and instead of treating each credit society as one unit, every investor in that credit society should be offered benefit of the insurance scheme. The credit societies also said that the classification was arbitrary and discriminatory as it treats depositors with Rs 1 lakh and less as different from those who have deposits of more than Rs 1 lakh. The HC rejected these contentions and also ruled that the classification was justified and valid. It also pointed out that as opposed to a general insurance scheme, banks pay a meagre amount as premium under the scheme. Further, the DIGC cannot decline to offer cover to any bank registered with it. The high court bench observed that the level of insurance cover in India works out to 2.2 times the per capita GDP of the country, when, in fact, the international benchmark in this regard is between 1 to 2 times the per capita GDP. |
