MUMBAI, April 5 -- In a move to safeguard the financial interests of depositors in cooperative credit societies, the state cooperation department has initiated a plan to introduce 'deposit insurance' by roping in insurance companies. The proposal aims to cover the risk of loss of deposits across 19,948 cooperative credit societies in the state, which collectively hold deposits exceeding Rs.90,500 crore, largely from rural areas. The decision comes in the wake of rising concerns over societies going into liquidation and instances of deposit losses due to frauds. To address this, the department has invited expressions of interest from insurance companies to provide deposit insurance to depositors. Under the proposed model, insurance companies are expected to charge a premium from the societies in return for offering protection for their deposits. "We have a separate mechanism to safeguard deposits in cooperative banks but there isn't one for credit societies," said an official from the cooperation department. "Insurance companies approached us with the idea of deposit insurance against a premium. In case deposits are lost due to fraud or if a society collapses financially, the insurance companies will compensate the depositors," the official added. Last year, the state government had proposed a separate mechanism to protect depositors, which required cooperative credit societies to contribute 0.1% of their deposits to a government-managed corpus for three years. The government had also announced a contribution of Rs.100 crore to this corpus. However, the proposal faced resistance from the societies. "Many financially sound societies opposed the idea, arguing that they were being forced to bear the burden for weaker or financially unstable societies," said the official. "They also resisted the plan to contribute for three years and requested the government to limit the contribution to just one year. Additionally, there were concerns about the corpus being managed by the government, with fears of political considerations influencing payouts to depositors." Due to such resistance and a lack of manpower within the department, the earlier proposal was not implemented. "The concept of deposit insurance is widely used in countries such as the United States and will operate under a proper legal framework, as these insurers are regulated by the Insurance Regulatory and Development Authority of India (IRDAI)," said cooperation commissioner Deepak Taware. "We are receiving a good response from insurance companies, and expect the premium to be lower than the 0.1% contribution proposed earlier. This initiative will also help bring credit societies into the broader insurance network, as insurers may offer additional financial products similar to those available to banks and other institutions. After studying the entire scheme, the insurance companies have expressed their willingness to take up liabilities of up to Rs.3,000 crore."...