The Deposit Protection Corporation (DPC), a subsidiary of the State Bank, has put forth a proposal aimed at securing the deposits of customers in microfinance banks. This move is seen as crucial in safeguarding vulnerable accounts from potential adverse financial shocks.
According to media reports, as per the proposal, the DPC, which currently guarantees full protection of deposits up to 5 lakhs for scheduled bank customers, is considering extending its coverage to include microfinance banks.
It is worth noting that 94% of the 73 million account holders fall within the 5 lakh deposit range. Scheduled banks, encompassing commercial, conventional, and Sharia banks, are currently covered, while microfinance banks are not.
In its recently released annual report for the fiscal year 2022-23, the DPC highlighted that 11 microfinance banks hold a capital of Rs 520 billion, catering to 98.2 account holders. Given the microfinance banks’ focus on financially vulnerable communities, the report emphasizes that any shocks to these banks could have far-reaching implications on the political, social, and economic fabric of the country. Hence, extending deposit protection to microfinance banks becomes imperative.
The DPC suggests expanding its scope to include microfinance banks, thereby ensuring the safeguarding of deposits for millions of people. While the Microfinance Institutions Ordinance 2001 already mandates microfinance banks to establish their own depositor protection fund from annual profits, the DPC believes that an additional, reliable mechanism is essential for depositors’ peace of mind.
Notably, the deposit protection fund of the corporation surpassed 100 billion rupees by June 2023. The fiscal year 2023 witnessed a continual increase in the volume of member banks, with total deposits reaching 25.6 thousand billion rupees by the end of June 2023.
