DEPOSIT INSURANCE AND CREDIT GUARANTEE

CORPORATIONDeposit Insurance and Credit Guarantee Corporation

Act 1961

DICGC is a wholly owned subsidiary of the Reserve Bank of India. Since 1962, it is engaged in providing deposit insurance for depositors of banks against loss of part or all of their deposits arising from bank failures. Deposit Insurance is compulsory as well as automatic for the bank and thus no bank can remain uninsured by the DICGC except those cooperative banks where the concerned State Governments are yet to pass the required legislation

Explicit deposit insurance is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance systems is a component of a financial system safety net that promotes financial stability

Concept of Deposit Insurance

Concept of insuring the deposits came after the banking crisis in 1948

The Deposit Insurance Corporation(DIC) bill was introduced in Parliament in 1961.

Deposit insurance act 1961, came into force on 1st January 1962.

In 1971, RBI also promoted a public limited company Credit Guarantee Corporation of India Ltd.(CGCI).

To integrate the function of DIC and CGCI, the two were merged and formed DICGC in 1978.

Formation of DICGC

In the event of a bank failure, DICGC protects bank deposits that are payable in India.The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.(i)  Deposits of foreign Governments; (ii) Deposits of Central/State Governments;(iii)Inter-bank deposits;(iv) Deposits of the State Land Development Banks with the State co-operative bank;(v) Any amount due on account of any deposit received outside India(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India

DICGC insures…

1. Commercial Banks: All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC

2. Cooperative Banks: All State, Central and Primary cooperative banks, also called urban cooperative banks

3. Primary cooperative societies are not insured by the DICGC

Banks insured under DICGC

Deposit Insurance plays a key role in maintenance of financial stability by sustaining public confidence in the banking system in India through protection of depositors, especially small and less sophisticated depositors, against loss of deposit to a significant extent.

The deposit insurance system in India is subject to the Provisions of Deposit Insurance Act (enacted in1961).

Deposit Insurance and Credit Guarantee Corporation (DICGC), which was established with funding from the Reserve Bank of India is the body that operates the deposit insurance system.

Role and Function of the Deposit Insurance System

Institutional coverage - all commercial banks

- all eligible cooperative banks u/s 2(gg) of DICGC

Registration of Banks

- all regional banks u/s 11 of DICGC Act 1961 - all eligible cooperative banks - Own fund

WORKING PROCESS

Insurance CoverageTypes of Deposit Covers

- The Corporation insures all bank deposits , such as savings, fixed, current, recurring, etc. except the

deposits of (i) foreign Governments; (ii) Central/ State Governments; (iii)State Land

development Banks with the State co- operative banks; as also (iv) inter-bank deposits (v) deposits received outside India

and (vi) deposit specifically exempted by the Corporation with the previous approval of the Reserve Bank.

Insurance premium The corporation collects premium from the insured banks

Cancellation of Registration - U/S 15A of DICGC Act the corp. possess the power

to cancel the registration of insured banks if it fails to pay premium for 3 consecutive half year period

Supervision and inspection of insured banks

Settlement of claims: - It helps to settle claims in the event of

winding up or liquidation of an insured banks

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