Deposit Insurance and Credit Guarantee Corporation

Why in news?

• RBI’s subsidiary Deposit Insurance and Credit Guarantee Corporation (DICGC) recently made a payment to the tune of Rs 1300 Crore to settle claims of depositors of urban co-operative banks which have been banned by the Reserve Bank of India

More about the news:

• This payment has been made on the basis of claims made by the depositors of 16 urban co-operative banks which have been banned by the Reserve Bank of India.

About Deposit Insurance and Credit Guarantee Corporation (DICGC)

• The functions of the DICGC are governed by the provisions of 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961' framed by the Reserve Bank of India.
• DICGC is established for the purpose of insurance of deposits and guaranteeing of credit facilities
• The authorized capital of the Corporation is 50 crore, which is fully issued and subscribed by the Reserve Bank of India (RBI)

Banks covered by Deposit Insurance Scheme

• All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks.
• All State, central and primary co-operative banks operating in states/union territories have also been kept under its purview.

Insurance coverage

• Earlier, the depositor used to get only up to Rs 1 lakh in case of bank sinking or bankruptcy, but now the government has increased this to Rs 5 lakh.

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 and deposit received outside India
  • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.

Insurance Premium

• The premium paid by the insured banks to the Corporation is required to be absorbed by the banks themselves so that the benefit of deposit insurance protection is made available to the depositors free of cost.
• In other words the financial burden on account of payment of premium should be borne by the banks themselves and should not be passed on to the depositors.

Settlement of claims

• In the event of the winding up or liquidation of an insured bank, every depositor of the bank is entitled to payment of an amount equal to his deposits held by him
• However, the payment to each depositor is subject to the limit of the insurance coverage fixed from time to time.

PRACTICE QUESTION

With reference to ‘Deposit Insurance and Credit Guarantee Corporation (DICGC)’, consider the following statements:

1. It is a fully owned subsidiary of RBI.

2. All commercial banks, including foreign banks with branches in India are mandated to take deposit insurance cover with the DICGC.

3. Deposits of Central or State Governments are not covered under DICGC

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 3 only

(d) 1,2 and 3

Answer