Wednesday, February 18, 2015

Deposit Insurance - DICGC

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Customers deposit their money in banks to avail several services provided to them by their respective banks. But what if the bank itself fails, or merges with another bank, or it becomes cease to exist? What will happen to the valuable deposits of the customers?

Considering these, bank deposits are provided with insurance covers in most of the banking systems in the world. India is no exception. However, the insurance cover may be in full or part.

Deposit Insurance in India
All the banks operating in Indian territory (with some exceptions) are covered under the deposit insurance facility provided by Deposit Insurance and Credit Guarantee Corporation (DICGC), a fully owned subsidiary of RBI. It established on July 15, 1978 with Deposit Insurance and Credit Guarantee Corporation Act, 1961.

DICGC insures all bank deposits (including saving, current, fixed, recurring) up to a maximum limit of Rs. 1 lakh (principal with interest).

Banks insured under DICGC
  • Commercial banks - Public sector banks, Private Sector Banks, Foreign Banks operating in Indian territory, Regional Rural Banks, Local Area Banks
  • Cooperative banks - State, Central and Primary Cooperative Banks (collectively called Urban Cooperative Banks, or UCB) that have amended Cooperative Societies Act, empowering RBI to control them
Currently approx. 2,130 banks are insured by DICGC.

Not covered under DICGC
  • Cooperative banks operating in Meghalaya, Chandigarh, Lakshadweep and Dadra & Nagar Haveli
  • Primary Cooperative Societies
Insurance coverage
DICGC protects bank deposits that are payable in India, including savings, current, fixed, recurring, etc. except the following deposits -
  • Foreign government deposits
  • Central and state government deposits
  • Inter-bank deposits, etc.
Note that this insurance is aimed to cover individual customer deposits or small business with maximum cover up to Rs. 1 lakh. Therefore the above exceptions are justified.

Insurance Premiums
Customers need not pay any premium to insure their deposits. DICGC charges a nominal premium from the banks. Customer deposits are automatically (from the customer's point of view) insured when they open any kind of deposits with the bank.

Insurance Claim
In case of a bank failure, customers need not make any claim under deposit insurance (in contrast to other insurances, where insurance claim is needed).

The official liquidator would make a claim on customers' behalf to the DICGCDICGC is bound to pay the valid insurance claim within 2 months period from receipt of claim from the liquidator. The liquidator then provides the claim amount to each customer.

When DICGC is liable to pay
  • If a bank goes into liquidation (fails)
  • If a bank is reconstructed or amalgamated / merged with another bank

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