Deposit Insurance and Credit Guarantee Corporation (DICGC)

The Finance Ministry is considering increasing the deposit insurance limit, which currently stands at ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961.

• The last increase in the deposit insurance limit was from ₹1 lakh to ₹5 lakh in February 2020 following the PMC Bank crisis.
• The current proposal to raise the deposit insurance limit is in response to the New India Co-operative Bank crisis, which led to RBI-imposed restrictions.

About Deposit Insurance and Credit Guarantee Corporation (DICGC)

• Deposit insurance was introduced in India in 1962.
• Established in 1978 after the merger of the Deposit Insurance Corporation (DIC) and the Credit Guarantee Corporation of India Ltd. (CGCI).
• Created following the Deposit Insurance and Credit Guarantee Corporation Act, 1961, passed by the Parliament.
• Role: Provides deposit insurance and credit guarantee to banks in India.
• Ownership: Fully owned subsidiary of the Reserve Bank of India (RBI) and is governed by it.
• Ministry Oversight: Ministry of Finance.
• Objective: Protects depositors’ funds and maintains public confidence in the banking system.

Funds Managed by DICGC

• Deposit Insurance Fund: Provides insurance coverage to bank depositors in case a bank fails financially, has no money to repay depositors, and undergoes liquidation.
  • Funded by premiums collected from banks.
• Credit Guarantee Fund: Ensures guaranteed repayment to a creditor if a debtor fails to return the borrowed amount.
• General Fund: Covers DICGC’s operational expenses.
  • Funded by the surplus generated from its operations.

About Deposit Insurance Scheme

• Establishment: The deposit insurance scheme was started with 287 banks in 1962; the number of insured banks was 1,997 as of March 31, 2024.
• Limit for Deposit Insurance: Each depositor is insured up to ₹5 lakh (including both principal and interest) per bank, per depositor.
  • Depositors holding more than ₹5 lakh in their account have no legal recourse to recover additional funds if the bank collapses.
  • Deposits across multiple branches of the same bank are clubbed under one insurance cover.
• Time limit: Claim settlement occurs within 90 days of RBI-imposed restrictions.
• Banks insured under DICGC:
  • Scheduled commercial banks (public, private, and foreign banks).
  • Regional rural banks (RRBs).
  • Local area banks.
  • Foreign banks operating in India.
  • Cooperative banks.
• Primary cooperative societies are not insured under DICGC.
• Covered products: Savings accounts, fixed deposits, current accounts, and recurring deposits are covered under the deposit insurance scheme.
• Deposits NOT Covered under the Scheme:
  • Deposits of foreign governments, central and state governments, and inter-bank deposits are excluded.
  • Deposits with State Land Development Banks are not insured.
  • Deposits located outside India and those specifically exempted by RBI approval are not covered.

Importance of Deposit Insurance

• Protection for Small Depositors : Ensures depositors do not lose their savings in case of bank failure, covering up to ₹5 lakh per depositor.
• Financial Stability & Confidence : Strengthens public trust in the banking system, reducing panic and ensuring financial security.
• Comprehensive Coverage : Covers savings, fixed, current, and recurring deposits across commercial, regional rural, and cooperative banks.
• Swift Payouts:  Enables timely compensation to depositors through DICGC, ensuring minimal disruption in accessing insured funds.