Budget 2021: Government To Amend Deposit Withdrawal Norms For Weak Banks

India plans to tweak deposit withdrawal norms for stressed banks to help customers access their money.

The government proposed to amend the Deposit Insurance and Credit Guarantee Corporation Act, 1961 to help depositors access withdrawals of up to Rs 5 lakh as insured under it even if the bank is temporarily unable to provide the funds, Union Finance Minister Nirmala Sitharaman said during her budget speech on Feb. 1, 2021. “This would help depositors of banks that are currently under stress.”

Depositors of Punjab & Maharashtra Cooperative Bank have had a difficult time accessing money since September 2019 when the Reserve Bank of India capped withdrawals. While the banking regulator started with a withdrawal limit of Rs 1,000 for six months, it later revised it to Rs 10,000 per depositor and eventually to Rs 1 lakh per customer, allowing 84% of the depositors to fully cash out. The bank’s customers, however, have been protesting the withdrawal limits. Meanwhile, investors are in the process of submitting bids for PMC Bank.

Depositors of private sector banks, too, faced short periods of withdrawal limits as the RBI forced resolution proceedings against them.

In March 2020, Yes Bank Ltd.'s customers were not allowed to withdraw more than Rs 50,000 each for two weeks as lenders led by State Bank of India were preparing a rescue plan. Later in November 2020, Lakshmi Vilas Bank depositors faced a limit of Rs 25,000 each for a week, after which it was rescued through a merger with DBS Bank India.

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