Deposit Insurance and Credit Guarantee Corporation Overview

The Deposit Insurance and Credit Guarantee Corporation is a vital institution that protects depositors and promotes financial stability. It was established in 1973 to provide deposit insurance and credit guarantee services.

The corporation's primary goal is to maintain stability and public confidence in the financial system. It achieves this by providing deposit insurance to depositors and credit guarantee to financial institutions.

Deposit insurance covers deposits up to a certain amount, currently set at RM250,000 per depositor per bank. This means that if a bank fails, depositors can claim up to this amount from the Deposit Insurance Fund.

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DICGC is a wholly-owned subsidiary of the Reserve Bank of India (RBI), providing deposit insurance as a protection cover for bank deposit holders.

It insures all kinds of deposit accounts, including savings, current, recurring, and fixed deposits.

The insurance limit is Rs. 5 lakh per account holder per bank.

In case an individual's deposit amount exceeds Rs.5 lakh in a single bank, DICGC will only pay Rs.5 lakh, including the principal and interest, if the bank becomes bankrupt.

DICGC protects depositors' money kept in all commercial and foreign banks located in India, including central, state, and urban co-operative banks, regional rural banks, and local banks, provided that the bank has opted for DICGC cover.

The agency's operations are performed as per The Deposit Insurance and Credit Guarantee Corporation Act, 1961 and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961, framed by RBI under the provisions of sub-section (3) of Section 50 of the act.

DICGC is a subsidiary wholly owned by the Reserve Bank of India, and its main purpose is to provide insurance to deposits in banks and guarantee loan facilities from banks to a selected class of society.

The deposit insurance scheme is mandatory for each and every bank currently present in India, and the corporation maintains three different types of funds: the Deposit Insurance Fund, the Credit Guarantee Fund, and the General Fund.

Related reading: Deposit Guarantee Scheme Directive

The Deposit Insurance Fund is maintained through insurance premiums obtained from banks, while the Credit Guarantee Fund is maintained from guarantee fees received at the time of grant of loan. The General Fund is used for maintaining the establishment of the corporation and other administrative expenses.

The corporation has the power to transfer amounts from one category of a fund to another, and any surplus amount from these funds is further invested in Central Government securities.

DICGC insures all deposits such as savings, fixed, current, recurring, etc, except for specific deposits mentioned below:

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

If a person has accounts in different branches of the same bank, 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.

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

Here's a breakdown of the maximum amount insured by DICGC for different scenarios:

DICGC Accreditation is a crucial step for banks to register with the agency, which grants a printed certificate displaying the protection offered by DICGC to depositors. This certificate is a tangible proof of the insurance coverage.

Customers can verify the authenticity of the certificate by inquiring with bank officials. If there's any doubt, it's best to check with the bank directly.

The Financial Sector Legislative Reforms Commission (FSLRC) proposed a regulatory structure consisting of seven agencies, including a deposit insurance-cum regulatory agency named Resolution Corporation. This new structure aims to provide a unified resolution process for financial firms.

The proposed Resolution Corporation will deal with an array of financial firms, not just banks. It will take responsibility for the graceful resolution of systemically important financial firms, even if they have no direct links to consumers.

The Government of India introduced the Financial Resolution and Deposit Insurance bill, 2017 (FRDI bill) to bring forth these reforms. However, concerns have been raised regarding the new bill, including the lack of clarity on insured amounts and the bail-in clause.

Here are some key concerns with the FRDI bill:

Accreditation is a crucial step for banks to protect their depositors.

DICGC accreditation is a must for banks to provide a sense of security to their customers.

The agency grants a printed certificate to the bank upon registration, displaying information on the protection offered to depositors.

This certificate can be enquired about with bank officials in case of any doubt.

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The Indian government has been working on reforms to improve the financial sector. The Financial Sector Legislative Reforms Commission (FSLRC) was set up in 2011 to review and rewrite the legal-institutional architecture of the Indian financial sector.

In 2017, the Government of India introduced the Financial Resolution and Deposit Insurance bill (FRDI bill) in Lok Sabha to bring forth these reforms. The bill proposes a unified resolution corporation that will deal with an array of financial firms, not just banks.

The Resolution Corporation (RC) will take responsibility for the graceful resolution of systemically important financial firms, even if they have no direct links to consumers. This is a significant change from the current system, which only protects bank deposits up to a certain limit.

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The DICGC will be subsumed into the Resolution Corporation, which will work across the financial system. The bill proposes that banks pay a sum to the Resolution Corporation, but it does not specify the insured amount or the amount a depositor would be paid in case of liquidation.

There are concerns about the new bill, including the bail-in clause, which worked against the interests of depositors in Cyprus. The bill also does not clarify how much a depositor would be paid in case of liquidation.

Here are some key points about the FRDI bill: