MUMBAI (TIP): In a bid to encourage strong banks take over ailing co-operative banks, the Reserve Bank of India (RBI) has said that large depositors in failed cooperatives must now sacrifice a portion of their deposits in proportion to the deposit erosion. This is to ensure that other lenders can acquire the failed bank without incurring any losses. Until now, a bank acquiring a cooperative had to pump in funds if the failed bank’s assets could not cover at least 65% of its total deposits.

In its latest circular, the RBI has said that under the new guidelines, the acquiring bank should not incur any loss arising out of the said merger or transfer of assets and liabilities of cooperative banks. “Big depositors holding deposits in excess of Rs 1 lakh each will be required to sacrifice in proportion to the deposit erosion of the target bank,” the circular said. At present, all bank deposits are covered up to Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC) — an arm of the RBI. DICGC receives its funds from premium collected from all banks (10 paise for every Rs 100 of deposits).

A bulk of the premium comes from commercial banks, but most of the funds are consumed by claims in respect of cooperative banks. The deposit insurance fund stood at Rs 36,120 crore as of March 2013, which was enough to cover 1.7% of insured bank deposits (up to Rs 1 lakh). “With a view to ensuring that the process of consolidation by way of non-disruptive exit of weak entities by a scheme of transfer of assets and liabilities of UCBs (urban cooperative banks) to commercial banks is undertaken in a transparent manner without affecting the financial health of the acquiring entities and the banking system as a whole, it has been decided to modify the existing guidelines for transfer of assets and liabilities of UCBs to commercial banks,” RBI said in the circular.

During the year 2012-13, DICGC settled aggregate claims for nearly Rs 200 crore in respect of 63 co-operative banks. The corporation has made provisions of over Rs 1,000 crore towards the estimated claim liability in respect of depositors of 195 banks, which are under amalgamation/liquidation and whose licence/application to carry on banking business has been cancelled.

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