Deposit Insurance and Credit Guarantee Corporation (DICGC)

Deposit Insurance and Credit Guarantee Corporation (DICGC)

Many of us maintain bank accounts across different banks, where our lifelong savings are securely held. These funds hold significant value for us, serving as both psychological reassurance and a financial resource for future needs. However, it’s known that banks utilize these deposits to lend to businesses and invest in financial markets. Like any enterprise, banks are susceptible to economic cycles and fluctuations in business. In such circumstances, one may question the fate of our savings if a bank encounters difficulties in repaying deposited funds. In India, to safeguard the interests of the common citizen, the government established the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the DICGC Act of 1961. This article provides comprehensive coverage of the DICGC and its role in protecting deposits.

Establishment of DICGC

The Deposit Insurance and Credit Guarantee Corporation (DICGC) was established on July 15, 1978. The idea of insuring deposits held with banks first gained attention in 1948, following banking crises in Bengal. In 1949, the concept was revisited for reconsideration, and in 1950, the Rural Banking Enquiry Committee also supported the notion.

It was after the collapse of the Palai Central Bank Ltd. that the Reserve Bank of India and the Central Government gave serious thought to the concept in 1960. On August 21, 1961, the Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament. Subsequently, after being passed by both houses, the Bill received the President’s assent on December 7, 1961, and the Deposit Insurance Act of 1961 came into force on January 1, 1962.

Initially, the functioning of the scheme was extended to commercial banks, including the State Bank of India, its subsidiaries, other commercial banks, and branches of foreign banks operating in India. The introduction of deposit insurance aimed to instill confidence in the banking system and protect depositors’ interests.

Deposit Insurance and Credit Guarantee Corporation: Insured Amount

With the announcement through the budget of 2020 and subsequent amendments to the DICGC Act, of 1961. The insured amount for all types of deposits has been increased to 5 Lakh from the earlier initial insured amount of 1 Lakh. You must know for all types of bank accounts the DICGC Act, 1961 has insured 5 Lakh in any eventuality. The DICGC charges a premium amount from banks for this insured amount. The insurance is available for each bank account.

Let’s Understand this with an example:

1. If you have a 5000 deposit in a bank and that bank goes bankrupt in the future then you will be given 5000 from DICGC.
2. A maximum of ₹5,00,000 (after the budget of 2020-21) is insured for each user for both principal and interest amount. If the customer has accounts in different branches of the same bank, all of those accounts are clubbed together, and the total sum is insured to a maximum of ₹5,00,000.
3. However, if there are more accounts in same bank, all of those are treated as a single account. The insurance premium is paid by the insured banks itself. This means that the benefit of deposit insurance protection is made available to the depositors or customers of banks free of cost.

Functions Of DICGC

• Its primary function is to provide insurance of the deposited Money in all banks.
• It provides insurance facility for all type of Saving deposit, Fixed deposit, Recurring deposit up to a maximum limit of 5 Lakh for each separate deposits in a bank.
• The deposits with Regional Rural Bank (RRB) are also covered by DICGC.
• All Scheduled commercial Banks & Cooperative Banks are covered under DICGC.
• It also covers the insurance of foreign banks which is running in India also be covered under DICGC.
• It also covers the insurance of Indian Banks which is functioning outside India.
• Primary Agricultural Credit Society, Cooperative banks from Meghalaya, Chandigarh, Lakshadweep & Dadra & Nagar Haveli are some of the exceptions which are not covered by DICGC.

Types of Deposit covered under DICGC –