ALL YOU NEED TO KNOW ABOUT DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION(DICGC) BILL, 2021
WHY IN NEWS?
- Recently, the Union Cabinet has cleared the Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021.
- The failure of banks such as Punjab and Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank reignited the debate on the low level of insurance against the deposits held by customers in Indian banks.
IN DEPTH:
- Deposit Insurance: It is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.
- Credit Guarantee: It is the guarantee that often provides for a specific remedy to the creditor if his debtor does not return his debt.
COVERAGE:
- The bill will cover 98.3% of depositors and 50.9% of deposit value in the banking system, way above the global level of 80% and 20-30%, respectively.
- It will cover all types of banks, which also include regional rural banks and co-operative banks.
- It will cover banks already under moratorium and those that could come under moratorium.
- Moratorium is a legally authorized period of delay in the performance of a legal obligation or the payment of a debt.
INSURANCE COVER:
- It will provide funds up to Rs 5 lakh to an account holder within 90 days in the event of a bank coming under the moratorium imposed by the Reserve Bank of India (RBI).
- Earlier, account holders had to wait for years till the liquidation or restructuring of a distressed lender to get their deposits that are insured against default.
- The Rs 5-lakh deposit insurance cover was raised from Rs 1 lakh in 2020.
- The Damodaran Committee on ‘Customer Services in Banks’ (2011) had recommended a five-time increase in the cap to Rs. 5 lakh due to rising income levels and increasing size of individual bank deposits.
- Within the first 45 days of the bank being put under moratorium, the DICGC would collect all information relating to deposit accounts. In the next 45 days, it will review the information and repay depositors within a maximum of 90 days.
INSURANCE PREMIUM:
- It permits raising the deposit insurance premium by 20% immediately, and maximum by 50%.
- The premium is paid by banks to the DICGC. The Insured banks pay advance insurance premiums to the corporation semi-annually within two months from the beginning of each financial half year, based on their deposits as at the end of previous half year.
- It has been raised from 10 paise for every Rs 100 deposit, to 12 paise and a limit of 15 paise has been imposed.
- This is only an enabling provision and the determination of an increase in the premium payable would involve consultations with the RBI and require government approval.
DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION
- It came into existence in 1978 after the merger of Deposit Insurance Corporation (DIC) and Credit Guarantee Corporation of India Ltd. (CGCI) after passing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 by the Parliament.
- It serves as a deposit insurance and credit guarantee for banks in India.
- It is a fully owned subsidiary of and is governed by the RBI.
COVERAGE:
- 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.
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 any deposit received outside India.
- Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.
THE CORPORATION MAINTAINS THE FOLLOWING FUNDS:
- Deposit Insurance Fund
- Credit Guarantee Fund
- General Fund
- The first two are funded respectively by the insurance premia and guarantee fees received and are utilised for settlement of the respective claims.
- The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation.