Context:
The Rajya Sabha passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill amid opposition uproar.
Relevance:
GS-III: Indian Economy (Growth and Development of Indian Economy, Banking), GS-II: Governance (Government Policies and Interventions)
Dimensions of the Article:
- Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021
- Deposit Insurance and Credit Guarantee Corporation (DICGC)
- How does DICGC manage deposit insurance?
Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021
The Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 proposes three key changes that could vastly improve the working of deposit insurance as it stands today. This was deemed necessary in the wake of failure of banks such as Punjab and Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank due to low level of insurance against the deposits held by customers in Indian banks.
Key provisions of the DICGC bill, 2021
- The Bill makes changes to the deposit insurance laws of the country according to which up to Rs 5 lakh of funds will be provided to an account holder within 90 days in the event of a bank being put under moratorium by the RBI. Previously, account holders had to get their insured deposits had to wait for years till the restructuring or liquidation of a distressed lender.
- The deposit insurance premium has also been raised by 20% effective immediately and maximum premium limit by 50%. This premium is paid by the various banks to the DICGC.
- Currently, as premium for insurance cover, banks pay 10 paisa on every Rs 100 worth deposits to the DICGC. This is being raised to 12 paisa on every Rs 100.
- With the bank being put under moratorium, in the first 45 days, DICGC will collect all deposit accounts related information’s. Then in the next 45 days, the information will be reviewed and depositors will be repaid within 90 days.
Deposit Insurance and Credit Guarantee Corporation (DICGC)
- Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of Reserve Bank of India.
- It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Hence, it is a Statutory body.
- It was established for the purpose of providing insurance of deposits and guaranteeing of credit facilities.
- DICGC insures all bank deposits, such as saving, fixed, current, recurring deposit for up to the limit of Rs. 500,000 of each deposits in a bank.
How does DICGC manage deposit insurance?
- DICGC charges 10 paise per ₹ 100 of deposits held by a bank (which is set to be increased to 12 paise by the 2021 law). The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
- DICGC last revised the deposit insurance cover to ₹ 1 lakh on May 1, 1993, raising it from ₹ 30,000 since 1980. The protection cover of deposits in Indian banks through insurance is among the lowest in the world.
- The Damodaran Committee on ‘Customer Services in Banks’ (2011) had recommended a five-time increase in the cap to ₹5 lakh due to rising income levels and increasing size of individual bank deposits.
- 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.
- The DICGC does not deal directly with depositors.
- The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.
- Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge.
- The DICGC is supposed to pay these dues within two months of receiving this list.
- In FY19, it took an average 1,425 days for the DICGC to receive and settle the first claims on a de-registered bank.
-Source: The Hindu
