New Delhi: The government is considering doing away with the mandatory deposit insurance requirement for deposit-taking firms under the company law. The deposit insurance provision is part of the Companies Act, 2013 but is yet to be made operational.
The Corporate Affairs Ministry, which is implementing the Act, has been extending the deadline for implementation of this particular provision. Sources said the ministry is looking at scrapping the deposit insurance requirement as suitable insurance product for the purpose is not available in the market.
The view has emerged that it would be difficult to have such an insurance product, they added. Implementation of the deposit insurance provision has been delayed over the years.
A significant part of the Companies Act came into force from April 1, 2014. This provision of the Act was made as part of larger efforts to safeguard the interest of investors amid instances of ponzi schemes. In a notification issued on May 11, the ministry again extended the deadline for complying with the deposit insurance norm to March 2018.
Interestingly, the ministry had proposed doing away with the norm in the bill introduced in 2016 to amend the Companies Act. It had proposed omitting requirement relating to deposit insurance and provide that deposit repayment reserve should not be less than 20 per cent of the amount of deposits maturing during the following financial year.
The bill was introduced in the Lok Sabha in March 2016 and then it was referred to the Standing Committee on Finance. The panel submitted its report on the legislation in December 2016. In March this year, the Cabinet approved the amendments to the bill after taking into consideration the suggestions made by the panel.
However, the bill was not introduced during the Budget session of Parliament that ended last month. Sources said the revised bill has retained the proposal to omit deposit insurance clause. Meanwhile the notification issued by the Ministry on May 11 has amended the Companies (Acceptance of Deposits) Rules, 2014.
“… the companies may accept deposits without deposit insurance contract till March 31, 2018 or till the availability of deposit insurance product, whichever is earlier,” the notification said.