Union Budget 2020-21: Safer Deposits, Stronger Cooperative Sector Banks and Major Boost to MSME

Introduction:

• Three most important proposals related with the banking sector were declared to be implemented. These are:

Insurance Cover on Deposits:

• Insurance cover on deposits means how much money will be paid to the depositor if the bank is closed due to some reason or goes bankrupt.
• The responsibility of providing insurance cover on deposits is with the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a fully owned subsidiary of the Reserve Bank of India.
• In the beginning, the insurance cover per depositor was Ra. 1500. This amount is now Rs. 5 lakh from 4 February, 2020. For the purpose of insurance cover on deposits, the banks have to pay the premium amount, not the depositors.

Strong Regulation System for Cooperative Banks:

• The complex system of rules is one of the big reasons for the deterioration of cooperative banks. Under the federal system, cooperative societies have been kept under the state list.
• If these societies act like a bank; they will have to follow the rules and regulations of the Reserve Bank of India.
• To strengthen the Cooperative Bank, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.
• Among Urban and Rural Cooperative Banks, State Co-operative banks (StCBs) and District Central Cooperative Banks (DCCB) have to register under the Co-operative Societies Act of the respective States or Multi-State Cooperative Societies Act.
• Banking Law was enforced on Cooperatives societies from 1 March, 1966. Therefore, the state level Cooperative Society Registrar or Central Registrar of Cooperative Societies and Reserve Bank of India have double control over UCB, DCCB and StCB today.
• The Cooperative banks (Multi-State Cooperative Bank) functioning in various states and UCB will be brought under the jurisdiction of The Reserve Bank of India.
• Banking related issues will be under the jurisdiction of The Reserve Bank of India, while the registrar has been authorized to deal with the administrative issues of cooperative societies.

Micro, Small, and Medium Enterprises (MSMEs):

• The budget proposes to support MSME sector through the banking system and also has the provision of easy loan returns.
• The budget has proposed to introduce a scheme to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for Medium and Small Entrepreneurs
  (CGTMSE).
• In addition, an app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flows mismatches for the MSMEs.

Important proposals associated with banking sector:

• Insurance cover on deposits is now Rs. 5,00,000 per depositor
• RBI has been provided more powers regarding regulation of cooperative banks
• The time limit of credit restructure extended for MSMEs
• New measures to be announced to enhance professional efficiency in public sector banks
• The government will sell its remaining stake in IDBI Bank.

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