(GIST OF YOJANA) Union Budget
2020-21: Safer Deposits, Stronger Cooperative Sector Banks and Major
Boost to MSME [APRIL-2020]
Union Budget 2020-21: Safer Deposits,
Stronger Cooperative Sector Banks and Major Boost to MSME
- 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
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
- 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
- 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.