This article is written by Ameya Vaidya who is currently pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata. 

Introduction

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 subsequently introduced ‘The Deposit Insurance Corporation (DIC) Bill in the parliament on 21st August 1961. The bill came into force from 1st January 1962.

Further, the Central Government introduced a Credit Guarantee scheme in 1960 after recommendations from the Reserve Bank of India. The Credit Guarantee Organisation guaranteed the advances (loans) by banks and other financial institutions to the people who belonged to the weaker and neglected sections of the society. The two organisations, namely, Deposit Insurance Corporation and Credit Guarantee Organisation were merged on 15th July 1978 and a new organisation in the name of Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence.

Framework and working of DICGC

Currently, DICGC is a subsidiary wholly owned by the Reserve Bank of India. The main purpose of the organisation is to provide insurance to the deposits in banks and also to give a guarantee on loan facilities from the banks to a selected class of society. The deposit insurance scheme is mandatory for each and every bank currently present in India.

The Corporation maintains 3 different types of funds, namely, ‘Deposit Insurance Fund’, ‘Credit Guarantee Fund’ and ‘General Fund’. The deposit insurance fund is maintained through insurance premium obtained from the banks and the credit guarantee funds are maintained from guarantee fees received at the time of grant of loan. These two funds are used to settle any claims occurring in respective fields. The general funds are utilised in maintaining the establishment of the corporation and other administrative expenses.

Any surplus amount from all these three categories of funds is further invested in Central Government securities only as permitted under Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 and any income obtained from such investments is added in these funds. The corporation has the power to transfer amount from one category of a fund to another.

Banks which comes under the ambit of DICGC for deposit insurance (i.e. insured by DICGC)

1. Commercial Banks: Currently each and every commercial bank operating in India is insured under DICGC scheme. The commercial banks include branches of foreign banks operating in India as well as local/nationalised banks and rural banks.
2. Co-operative Banks: All co-operative banks which are functioning in different States and Union territories which has made appropriate amendment to their local Co-operative Societies Act, giving power to the Reserve Bank of India to give specific order to the Registrar of Co-operative Societies of the State or Union territory to constitute and complete winding up of a co-operative bank or to override the management and also making provisions which will require the Registrar to take written permission from the RBI before undertaking any winding up or amalgamation or reconstruction of a co-operative bank, where a bank is covered under DICGC schemes. Currently, all co-operative banks are insured by DICGC.
3. No Primary Co-operative societies bank is covered under DICGC schemes.

What exactly does DICGC insure?

All Deposits such as savings, fixed, current, recurring, etc are normally insured by DICGC except for the deposits which are specifically mentioned below:

1. Any deposits made by any Foreign Government.
2. Deposits of Central Government or any of the State Governments.
3. Deposits made by any State Land Development Banks with a State Co-operative Bank.
4. On amount due on account of any deposit which is received outside India which might be of any amount.
5. Various inter-bank deposits.
6. The corporation can specifically exempt any deposit with prior approval from the Reserve Bank of India.

Amount Insured on deposits under DICGC scheme

1) Rs. 1,00,000/- (1 Lakh) is the maximum amount which is insured by DICGC for each user on deposit amount as well as any interest.

For example: If a person has a deposit with a principal amount of Rs. 95,000/- and the interest on that amount is Rs. 4,000/-, then the total amount insured by DICGC is Rs. 99,000/-, however, if the principal amount is Rs. 1,00,000/- the further interest accrued will not be insured as the threshold on insurance cover is Rs. 1,00,000/- only. If the amount deposited plus any interest accrued on the amount is less than Rs. 1,00,000/- then the deposited amount, as well as any interest accrued, later on, is insured wholly, but if the aggregate amount of deposit and interest on the deposit is more than Rs. 1,00,000/- then the amount insured is Rs. 1,00,000/- only.

2) 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. 1,00,000/- on the aggregate amount.

For example: If a person has deposits of Rs. 45,000, 75,000 and 30,000 in three different accounts of three different branches of, say, State Bank of India, then the insurance cover would be Rs. 1,00,000 on the aggregate amount from all three branches, i.e. Rs. 1,00,000/- insurance on Rs. 45,000 + Rs. 75,000 + Rs. 30,000 = Rs. 15,00,000/-.

3) However, if a person holds more than one account in different banks then the amount insured will be maximum of Rs. 1,00,000/- on the deposits per bank.

For example: if a person has deposits of Rs. 45,000, Rs. 75,000 and Rs. 30,000 in State Bank, IDBI and ICICI respectively, then all these deposits will be insured separately.

4) Deposits held in the same capacity and the same right

If a person has more than one account in one or more branches of the same bank, such as more than one savings or current accounts or fixed or recurring deposit accounts, then it will be considered that all these accounts are held by that person in the same capacity and same right. Hence, the insurance will be available upto a maximum of Rs. 1,00,000/- on the aggregate of amounts which are available in all these accounts. Also, the account of the person as a sole proprietor of a business will be considered as a deposit in the same capacity and same right.

5) Deposits held in different capacity and different right

If a person has different accounts in his capacity as a partner of a firm or guardian of a minor or director of a company or a trustee of a trust or a joint account with the spouse in one or more branches of the same bank, then all these accounts will be considered as accounts/deposits held by that person in different capacity and different right. Also, these deposits will enjoy the insurance cover separately upto the maximum of Rs. 1,00,000/-.

6) Deposits in Joint Accounts

1. If more than one person holds joint accounts (i.e Savings, Current, Fixed or Recurring) in the same branch of a bank or in more than one branch of the same bank and if their name appears in the same sequence

For Example, Rancho, Farhan and Raju in all the joint accounts held by them, then the deposits in these joint accounts will be considered as deposits held in the same capacity and same right. Hence, the insurance cover will be upto the maximum of Rs. 1,00,000/- on the aggregate of the amount of deposits in all these joint accounts.

1. On the other hand, if different joint accounts are held by same persons (in the same branch of a bank or in different branches of the same bank) but the names of those persons do not appear in the same sequence.

For Example: Rancho, Farhan and Raju; Farhan, Raju and Rancho; Raju, Rancho and Farhan or if the group of persons is different e.g. Farhan, Raju and Phunsukh Wangdu and Farhan, Raju and Chatur etc. then the deposits in these joint accounts will be considered as deposits held in different capacity and different right. Hence, the insurance cover will be available upto the maximum of Rs. 1,00,000/- on the amount of deposits in all these joint accounts separately.

Who will pay the premium?

The Banks in which the deposits are kept are liable to the insurance premium itself. That means the depositors or customers of a bank will be insured free of cost.

It is important to note that, if the bank fails to pay the premium for consecutive three half-year periods (i.e. continuously for one and half year) then the DICGC has the power to revoke the registration of that bank. The bank can be re-registered on request and if it pays the amount of premium due with interest.

When is DICGC liable to pay to the Depositor?

If the bank goes into liquidation, then the DICGC will pay the insured amount to the depositors through the official liquidator appointed by RBI. These depositors will be paid within two months from the date when the liquidator sends the list of genuine claims of original depositors.

On the other hand, 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.

How will a person know if his/her bank is insured by DICGC?

When a bank is registered with DICGC, that bank is provided with a printed leaflet which the bank has to display it at the entrance or at any other place in the bank where it will be read by the customers. The leaflet consists of the information that the deposits of the customers of that bank are insured by DICGC.

Customers can also inquire with the bank officials regarding the insurance.

Customers can also access the DICGC website to know if their banks are insured by DICGC. Links to access the same is given below.

• The main website:

https://www.dicgc.org.in/index.html

• List of Commercial Banks:

https://www.dicgc.org.in/FdLibCommercialBanks.aspx

• List of Co-operative Banks:

https://www.dicgc.org.in/FdLibCoOperativeBanks.aspx

• List of Regional Rural Banks:

https://www.dicgc.org.in/FdLibRRB.aspx

• List of Local Area Banks:

https://www.dicgc.org.in/FD_LIB_LABs.html

Conclusion

Hence, in order to keep the faith of the public on the banking system and to further motivate them to deposit their money in banks, it was very important for the Central Government to give some insurance on deposits if the bank fails in the future. Hence, the Deposit Insurance and Credit Guarantee Corporation has made provisions to give insurance of maximum Rs. 1,00,000/- on the amount deposited in the banks.

Reference:

DICGC’s main website: dicgc.org.in