Deposit Insurance and Credit Guarantee Corporation (DICGC)

Many of us keep bank accounts across different banks, where our lifelong savings are secured. These savings 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 funds 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:

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.

If you have a Six lakh deposit in a bank account and that bank goes bankrupt in the future, then you will be given 5 lakhs from DICGC because this is the maximum limit.

Functions Of DICGC

Its primary function is to provide insurance of the deposited Money in all banks. It provides insurance facility for all types of Saving deposits, Fixed deposits, Recurring deposits up to a maximum limit of 5 Lakh for each separate deposit 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 are running in India also be covered under DICGC. It also covers the insurance of Indian Banks which are 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

• Saving Bank Deposits
• Fixed deposits
• Recurring deposits

Exceptions

• It won’t accept Deposits for Foreign Governments
• The deposits by the Indian Government & State Govt. also not accepted under this Act.

Frequently Asked Questions (FAQs) – Deposit Insurance and Credit Guarantee Corporation (DICGC)

1. What is the purpose of the Deposit Insurance and Credit Guarantee Corporation (DICGC)?

• The DICGC is established to safeguard the interests of depositors by providing insurance for their deposits held in banks.

2. When was the DICGC established and under what legislation?

• The DICGC was established on July 15, 1978, under the DICGC Act of 1961.

3. What is the insured amount provided by DICGC for deposits?

• The insured amount for all types of deposits has been increased to 5 Lakh from the earlier initial insured amount of 1 Lakh, as per the amendments to the DICGC Act of 1961.

4. Which types of deposits are covered under DICGC insurance?

• DICGC provides insurance for all types of deposits, including Saving deposits, Fixed deposits, and Recurring deposits, up to a maximum limit of 5 Lakh for each separate deposit in a bank.

5. Are deposits with Regional Rural Banks (RRBs) covered under DICGC?

• Yes, deposits with Regional Rural Banks (RRBs) are also covered by DICGC.

6. Which banks are covered under DICGC insurance?

• All Scheduled commercial Banks & Cooperative Banks are covered under DICGC, including foreign banks operating in India and Indian banks functioning outside India.

7. Are there any exceptions to DICGC coverage?

• Yes, some exceptions exist. Primary Agricultural Credit Society, Cooperative banks from Meghalaya, Chandigarh, Lakshadweep & Dadra & Nagar Haveli are not covered by DICGC. Additionally, deposits for Foreign Governments and deposits by the Indian Government & State Govt. are not accepted under this Act.

8. How does DICGC ensure the safety of depositors’ funds?

• DICGC charges a premium amount from banks for the insured amount and ensures that the insurance is available for each bank account, thereby providing a safety net for depositors in case of bank failures.

9. What happens if a bank goes bankrupt?

• In the event of a bank going bankrupt, DICGC ensures that depositors receive compensation up to the insured limit for each of their bank accounts.