Thiruvananthapuram, Kerala: The government has issued a notification increasing the deposit guarantee cover for cooperative banks and societies in the state to ₹10 lakh, in a move aimed at strengthening investor confidence in the cooperative sector. By comparison, the Central Deposit Insurance and Credit Guarantee Corporation (DICGC) covers deposits in commercial banks up to ₹5 lakh.

The Kerala Cooperative Deposit Guarantee Fund Board has been providing deposit security cover and releases funds when cooperative banks face closure. However, delays in closure have previously delayed payouts to depositors, as seen in the Karuvannur Cooperative Bank case, where depositors did not receive the earlier guarantee cover of up to ₹5 lakh. To address this, the board’s bylaw has now included a provision to allow special financial assistance to cooperative banks in crisis.

The governing body had earlier pointed out that the board should be given more financial support if it wanted to increase the protection cover for cooperative deposits. Agreeing to this, the government changed the provision that required payment of only the additional deposit each year, and made it mandatory to pay a contribution at the rate of two paisa per ₹100 for the total deposit from April 2025, and four paisa from April 2026.

Cooperative banks and societies protested, saying this would entail a huge financial burden. Following this, the government cancelled the provision requiring contribution on the total deposit. The rate for the additional deposit was revised to 10 paisa per ₹100, while 12 paisa will be paid for the additional deposit received next year. The board has so far received only ₹376 crore through the guarantee contribution provided by the societies.

The notification also includes a provision allowing the governing body to transfer unclaimed deposits in cooperative banks to support crisis-hit counterparts. Unclaimed deposits over the past 10 years are estimated at around ₹700 crore. Savings accounts inactive for 10 years will also be transferred, with the government assuring that the funds will be returned with interest once legal heirs come forward.