Deposit Insurance & Credit Guarantee Corporation (DICGC)

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India (RBI) that provides insurance coverage to depositors in the event of a bank failure. Its primary objective is to safeguard the interests of small depositors and ensure public confidence in the Indian banking system.

Historical Background:

India was among the first few countries to introduce a deposit insurance system. The Deposit Insurance Corporation (DIC) was established in 1962 under the Deposit Insurance Act, 1961, following the collapse of several banks in the 1950s. Its formation aimed to protect depositors and promote financial stability.

In 1971, the Credit Guarantee Corporation of India Ltd. (CGCI) was set up to provide credit guarantees to small borrowers. Recognizing the overlap in their functions, the two entities were merged in 1978 to form the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the DICGC Act, 1961. Since then, the DICGC has been working under the control of the RBI.

Objectives of DICGC

1. To protect small depositors in the event of a bank failure by insuring their deposits.
2. To enhance the confidence of the public in the banking system.
3. To support credit facilities for small and medium enterprises (historically, through credit guarantees).
4. To contribute to financial stability by minimizing panic during banking crises.

Functions of DICGC:

1. Deposit Insurance

The DICGC provides deposit insurance cover for:

• Savings accounts
• Fixed deposits
• Recurring deposits
• Current accounts

It ensures that depositors do not lose their entire savings if their bank collapses. As of now, the maximum insured amount is ₹5 lakh per depositor per bank, including both principal and interest.

2. Credit Guarantee (Discontinued)

Earlier, the DICGC also provided credit guarantees for loans to small and marginal borrowers. However, this function has been phased out since 2003, and the Corporation now focuses entirely on deposit insurance.

Coverage Scope

• All commercial banks including foreign bank branches in India
• Regional Rural Banks (RRBs)
• Local Area Banks (LABs)
• Cooperative Banks in all states and UTs

Banks are mandatorily required to be members of the deposit insurance scheme to operate in India.

However, the DICGC does not cover:

• Deposits of foreign governments
• Inter-bank deposits
• Deposits of central/state governments
• Deposits outside India
• Amounts due under deposit schemes not complying with DICGC rules

Premium and Funding

• Banks pay a premium to DICGC for the insurance cover.
• The current premium rate is 12 paise per ₹100 of assessable deposits.
• The entire premium is borne by the banks and not charged to depositors.
• The DICGC maintains a Deposit Insurance Fund (DIF) to meet its insurance liabilities. This fund is built from premiums and interest income.

Claims and Payout Mechanism

In the event of a bank failure:

• The RBI imposes a moratorium on the bank.
• Within 90 days, the DICGC is required to settle the insured amount up to ₹5 lakh per depositor.
• Banks must submit the depositor data within the first 45 days, and DICGC disburses the claims within the following 45 days.

The DICGC (Amendment) Act, 2021 has greatly improved this payout timeline, making the process faster and more efficient, especially for distressed depositors.

Recent Developments

1. Increase in Coverage Limit:

   The insurance limit was raised from ₹1 lakh to ₹5 lakh in 2020, after nearly 27 years. This was a significant move, benefiting over 98% of deposit accounts.

2. Faster Claims Settlement (2021):

   The 2021 amendment mandates timely reimbursement within 90 days, offering better protection to depositors.

3. Enhanced Transparency:

   Banks are now required to publicly disclose their DICGC membership and the insurance coverage available.

Challenges Facing DICGC:

• The ₹5 lakh limit may not be sufficient for high-value depositors.
• DICGC covers only a part of total bank deposits (around 50% by value).
• Co-operative banks often lack transparency, leading to delays in settlement.
• There is a lack of public awareness about the insurance mechanism and limits.

Role in Financial Stability:

The DICGC plays a pivotal role in maintaining public trust in the banking system. By ensuring that small depositors are protected, it:

• Prevents bank runs in times of distress,
• Strengthens the safety net for vulnerable depositors, and

• Complements RBI’s regulatory framework for bank supervision.