Bank Deposit Insurance Programme

• 15 Dec 2021

For Prelims: Deposit Insurance, its limit and coverage, DICGC

For Mains: Importance of Deposit Insurance and the need of the Deposit Insurance and Credit Guarantee Corporation (DICGC)

Why in News

Recently, the Prime Minister said that Rs 1,300 crore had been paid to over 1 lakh depositors who could not access their money as their banks faced financial crises.

• The deposits worth Rs 76 lakh crore were insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act providing full coverage to around 98% of bank accounts.
• Earlier, the Union Cabinet cleared the Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021.

Deposit Insurance: It is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.

Credit Guarantee: It is the guarantee that often provides for a specific remedy to the creditor if his debtor does not return his debt.

Key Points

• Limit for Deposit Insurance:
  • Currently, a depositor has a claim to a maximum of Rs 5 lakh per account as insurance cover. This amount is termed ‘deposit insurance’
    • The cover of Rs 5 lakh per depositor is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
  • Depositors having more than Rs 5 lakh in their account have no legal recourse to recover funds in case a bank collapses.
  • Premium for the insurance has been raised from 10 paise for every Rs 100 deposit, to 12 paise and a limit of 15 paise has been imposed.
    • The premium for this insurance is paid by banks to the DICGC, and not be passed on to depositors.
    • The Insured banks pay advance insurance premiums to the corporation semi-annually within two months from the beginning of each financial half year, based on their deposits as at the end of previous half year.
• Coverage:
  • Banks, including regional rural banks, local area banks, foreign banks with branches in India, and cooperative banks, are mandated to take deposit insurance cover with the DICGC.
• Types of Deposits Covered:
  • DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits:
    • Deposits of foreign Governments.
    • Deposits of Central/State Governments.
    • Inter-bank deposits.
    • Deposits of the State Land Development Banks with the State co-operative banks.
    • Any amount due on account of any deposit received outside India.
    • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.
• Need of Deposit Insurance:
  • Troubles for depositors in getting immediate access to their funds in banks in recent cases such as Punjab & Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank had put spotlight on the subject of deposit insurance.

DICGC

• About:
  • It came into existence in 1978 after the merger of Deposit Insurance Corporation (DIC) and Credit Guarantee Corporation of India Ltd. (CGCI) after passing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 by the Parliament.
  • It serves as a deposit insurance and credit guarantee for banks in India.
  • It is a fully owned subsidiary of and is governed by the Reserve Bank of India (RBI).
• Funds:
  • The Corporation maintains the following funds :
    • Deposit Insurance Fund
    • Credit Guarantee Fund
    • General Fund
  • The first two are funded respectively by the insurance premia and guarantee fees received and are utilized for settlement of the respective claims.
  • The General Fund is utilized for meeting the establishment and administrative expenses of the Corporation.

Source: IE