Deposit Insurance Corporation And Credit Guarantee Corporation

Deposit Insurance Corporation And Credit Guarantee Corporation

 After the banking crisis in Bengal in the year 1946 and 1948, it became an important task to come up with a scheme to insure the deposits which were kept in banks by the general public and the concept of deposit insurance came into the picture.

After the crash of Laxmi Bank Ltd. and later Palai Central Bank Ltd. in the year 1960, the Central Government as well as the Reserve Bank of India became vigilant on this issue and the Deposit Insurance Corporation (DIC) and a Credit Guarantee Corporation (CGC) came into picture in 1960 after recommendations from the Reserve Bank of India.

The two organizations, namely, Deposit Insurance Corporation and Credit Guarantee Organisation were merged on 15th July 1978 and a new organization in the name of Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence under Deposit Insurance and Credit Guarantee Corporation Act, 1961.

Objectives

1. To boost the faith of the public in the banking system
2. To provide protection against the loss of deposits to a significant extent
3. To contribute to stability in the banking system
4. To protect the interest of small depositors and borrowers

Features:

1. Subsidiary of RBI
   Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of Reserve Bank of India. The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a bank fails. It was established on 15 July 1978 under Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities.
    
2. Premium
   Insured banks pay premiums to DICGC and DICGC decides the premium with the prior approval of the RBI. The current maximum rate is 0.15% of the total outstanding deposits. This limit can be increased with prior approval of the RBI. The Depositors can get the insured amount within 90 days in case the bank has been put under moratorium by the RBI. The corporation may cancel the registration of an insured bank if it fails to pay the premium for three consecutive periods.
    
3. Deposit Insurance Coverage
   Deposit insurance covers all deposits such as savings, fixed, current, recurring etc. in all commercial banks, functioning in India and all Cooperative banks functioning in different States and Union Territories. Except the following types of deposits:
   1. Deposits of foreign governments.
   2. Deposits of central/state governments.
   3. Inter-bank deposits.
   4. Deposits of the State Land Development Banks with a State Co-operative Bank.
   5. Any amount due on account of any deposit received outside India.
   6. Any amount specifically exempted by the DICGC with the previous approval of RBI.

Liability of DICGC

1. Liquidation of the bank:
   If the bank goes into liquidation, then the DICGC will pay the insured amount to the depositors through the official liquidator appointed by RBI.
    
2. Reconstruction or Merger & Acquisition:
   If the bank is reconstructed or merged with any other bank, then DICGC will pay the insured amount directly to the newly reconstructed or newly merged bank.

Amount insured

Rs. 5,00,000/- (1 Lakh) is the maximum amount which is insured by DICGC for each user on deposit amount as well as any interest. If a person has accounts in different branches of the same bank, then the deposits of all the branches will be added together and the maximum amount insured will be Rs. 5,00,000/- on the aggregate amount. However, if a person holds more than one account in different banks then the amount insured will be maximum of Rs. 5,00,000/- on the deposits per bank.