In banking, trust is crucial. People count on banks to keep their money safe. That’s why in India, we have something called the Deposit Insurance and Credit Guarantee Corporation (DICGC). It’s like a safety net for your money in case something goes wrong with the bank.
What is DICGC?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of the Reserve Bank of India (RBI), established in 1978. It operates under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, and serves as the primary entity responsible for providing deposit insurance to bank depositors in India.
Coverage Limits
DICGC provides insurance cover to depositors in the event of a bank failure. However, it’s essential to understand the coverage limits. Currently DICGC insures deposits up to Rs. 5 lakh including both principal and interest amount per depositor per bank. This means that if a bank fails, each depositor is insured up to Rs. 5 lakh in that bank, regardless of the number of accounts they hold.
Let’s understand it with examples –
Example 1: An individual ‘A’ holds multiple savings accounts in his name, such as Account 1, Account 2, and Account 3 in same bank and different branches. Since these accounts are held by the same individual with identical ownership rights and entitlements, they fall under the category of “same capacity and same right” Therefore, the deposit insurance coverage applies to the total sum of deposits across all accounts up to the prescribed limit i.e. Rs 5 lakh.
Example 2: Mr. A and Mr. B hold a joint savings account together, along with individual savings accounts in their respective names (e.g. Joint Account, Mr. A’s Account, Mr. B’s Account). In this scenario, each account has a different ownership structure and comes under “different capacity and different right” classification. Therefore, deposit insurance coverage is assessed separately for each account.
Example 3: Mr. A and Mr. B hold 2 joint savings account together. 1st account with primary holder A and secondary holder B. 2nd account with primary holder B and secondary holder A. In this scenario also, each account has a different ownership structure and comes under “different capacity and different right” classification. Therefore, deposit insurance coverage is assessed separately for both account.
Types of Deposits Covered
DICGC provides insurance cover for various types of deposits, including savings, fixed, current, and recurring deposits. Additionally, deposits in different currencies are also covered, subject to the exchange rate prevailing on the date of receipt of claim by the Corporation.
Types of Banks Covered
The DICGC extends its coverage to various categories of banks operating in India. This includes all commercial banks, including branches of foreign banks, local area banks, regional rural banks, and cooperative banks.
Exclusions
While DICGC offers robust deposit insurance, certain types of deposits are excluded from coverage. Inter-bank deposits, deposits of foreign governments, deposits of central/state governments, and deposits of the State Land Development Banks with the State co-operative bank are some examples of exclusions.
Automatic Coverage
One of the significant advantages of DICGC insurance is that depositors do not need to apply for coverage. Insurance is automatic for all deposit accounts held by the depositors.
Bank Failure and Claims Settlement
In the unfortunate event of a bank failure, DICGC ensures prompt settlement of claims for insured depositors. The Corporation endeavors to settle claims within two months from the date of receipt of the claim. This swift resolution mechanism provides depositors with the much-needed reassurance during challenging times.
Premium
The premium for deposit insurance is borne entirely by the insured banks. This premium is calculated based on the amount of deposits insured and the risk profile of the bank. By shifting the burden of premium payment to banks, DICGC ensures that the deposit insurance scheme remains sustainable and effective.
Conclusion
In summary, the Deposit Insurance and Credit Guarantee Corporation (DICGC) is vital for protecting bank depositors in India. It offers insurance cover and sets clear rules, which strengthens the financial system’s stability. Knowing DICGC’s rules helps depositors make smart choices and builds confidence in the banking system.