Coverage

Deposit insurance coverage with the DICGC is mandatory for all banks. This includes local banks, cooperative banks, regional rural banks, and foreign banks operating in India.

Types of deposits

The DICGC guarantees all bank deposits, including saving, fixed, current, and recurring deposits, except for the following categories:

• Government deposits from other countries.
• Deposits made by the federal and state governments.
• Deposits made between banks.
• Any amount owing as a result of a deposit made outside of India.
• Any amount that has been officially excluded by an entity with the RBI’s prior consent.

Funds

The Corporation holds the following funds:

1. Credit guarantee fund
2. Deposit insurance fund
3. General fund

• The first two are financed by the insurance premiums and guarantee fees collected.
• The Corporation’s establishment and administration expenses are financed from the General Fund.

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Why is it in News?

The Deposit Insurance and Credit Guarantee Corporation Bill, 2021, was recently approved by the Union Cabinet.

Background

• This action was taken in response to a significant fraud at Punjab and Maharashtra Co-operative Bank.
• As a result, Lakshmi Vilas Bank and Yes Bank were also put under pressure, leading to their restructuring.
• The Cabinet approved changes to the DICGC Act, allowing customers to retrieve up to INR 5 lakh within 90 days if their banks become bankrupt and are placed under suspension.

Key points

The following points will explain some important facts about DICGC for your IAS preparation:

Quick Liquidation- Previously, bank customers had to wait years to protect their savings against default if a distressed lender was liquidated or restructured. Now, the process is expected to be completed in 90 days.

Increasing the premium for deposit insurance- The DICGC Act allows for an immediate 20 per cent increase in the deposit insurance rate, with a maximum increase of 50 per cent.

• The DICGC receives the premium from banks. The insured banks pay the organization advance insurance premiums twice a year.
• Banks typically pay the DICGC a minimum of 10 paise per INR 100 as an insurance premium, which is now increased to a minimum of 12 paise and a maximum of 15 paise.
• This is simply an enabling clause; any adjustment in the premium charged would require agreement with the RBI and the government’s consent.

Deposit Value Protection – It would release a deposit of up to INR 5 lakh to a bank account holder within 90 days.

• In 2020, the deposit insurance cover of INR 5-lakh was increased from INR 1 lakh. It will cover 98.3 per cent of all deposit accounts in terms of number and 50.9 percent of deposits in terms of value.

Inclusion of both new and existing banks- The DICGC will apply to banks that have already been placed under a moratorium and those that may be placed under one in the future.

• A moratorium is a legally recognized period during which the fulfillment of a legal obligation or the payment of a debt is delayed.
• All types of banks will be covered, including rural and cooperative banks.
• The DICGC will collect all deposit bank account details within the first 45 days of placing the lender under suspension.
• It will analyze the data over the next 45 days and reimburse depositors within 90 days.

Small LLP Scope Enhanced – Small LLPs will be defined as entities with contributions of up to INR 5 crore and annual turnover of up to INR 50 crore; previously, these limits were set at INR 25 lakh and INR 40 lakh, respectively.

Conclusion

To maintain trust in the banking system and encourage people to deposit their money in banks, the Central Government had to provide assurances about deposits made.

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