Alyssa Lane
India introduced deposit insurance in 1962, when the Deposit Insurance Corporation commenced functioning under the Reserve Bank of India (RBI). In 2020, the RBI increased deposit insurance from Rs 1 lakh to Rs 5 lakh, providing coverage for various deposit types, including savings accounts, fixed deposits, and current accounts. This safety net protects bank customers in the event of a bank's inability to pay its debts, promoting financial stability.
| Characteristics | Values |
|---|---|
| Deposit insurance introduced in India | 1962 |
| Organization | Deposit Insurance and Credit Guarantee Corporation (DICGC) |
| Coverage | Rs 5 lakh per individual bank account |
| Activation | During bank liquidation, reconstruction or merger, and when the RBI implements withdrawal restrictions |
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What You'll Learn
Deposit Insurance and Credit Guarantee Corporation (DICGC)
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of the Reserve Bank of India, which falls under the jurisdiction of the Ministry of Finance, Government of India. It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, with the primary objective of providing insurance for deposits and guaranteeing credit facilities.
The DICGC insures all types of bank deposits, including savings, fixed, current, and recurring deposits, up to a limit of ₹500,000 per depositor in a bank. This limit was increased from ₹100,000 to ₹500,000 on 4 February 2020. The insurance coverage provided by the DICGC extends to various deposit types, ensuring that depositors are protected in the event of bank failure. It is important to note that certain deposits are not eligible for this protection, including those belonging to foreign governments, central or state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the Reserve Bank of India.
The DICGC becomes active in specific situations to safeguard depositors' funds. These situations include bank liquidation, where the DICGC pays the insured sum to the court-appointed liquidator within two months of receiving the claims. During bank reconstruction or merger, the DICGC covers the difference between the full deposit amount (capped at the insured limit) and the amount received under new arrangements. Additionally, when the Reserve Bank of India implements restrictions on withdrawals, the DICGC ensures that depositors can access their insured funds.
The DICGC plays a crucial role in maintaining the stability and confidence of the Indian banking sector. By insuring deposits, it provides a safety net for depositors, particularly small depositors, in the event of financial difficulties or failures of banks. This protection is essential for safeguarding the hard-earned savings of individuals and helping them plan for long-term financial commitments such as retirement and education.
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Deposit Insurance Corporation
In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of the Reserve Bank of India (RBI) that provides deposit insurance. The DICGC was formed in 1978 through the merger of the Deposit Insurance Corporation (functioning since 1962) and the Credit Guarantee Corporation of India Ltd. (established in 1971). The DICGC is governed by the Deposit Insurance and Credit Guarantee Corporation Act, 1961, and the Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961.
The DICGC insures all bank deposits, including savings, fixed, current, and recurring deposits, up to a limit of Rs. 500,000 per depositor in a bank. This limit was increased from Rs. 100,000 to Rs. 500,000 in February 2020. The insurance coverage is provided free of cost to the depositors or customers of banks.
The DICGC becomes active in specific situations, such as bank liquidation, reconstruction, or merger, and when the RBI implements withdrawal restrictions. In the event of bank liquidation, the DICGC pays the insured sum to the court-appointed liquidator within two months of receiving the claims. During a bank reconstruction or merger, the DICGC covers the difference between the full deposit amount (up to the insured limit) and the amount received under the new arrangements.
The DICGC has the authority to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. However, the bank can request to restore its registration by paying all due amounts, including premiums and interest.
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Credit Guarantee Corporation of India Ltd. (CGCI)
The Credit Guarantee Corporation of India Ltd. (CGCI) was a public limited company promoted by the Reserve Bank of India (RBI) on 14 January 1971. The Deposit Insurance Scheme was extended to Regional Rural Banks (RRBs) by the CGCI.
On 15 July 1978, the CGCI was merged with the Deposit Insurance Corporation (DIC) to form the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Deposit Insurance Act, 1961 was amended and renamed the 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961'. The DICGC is governed by the provisions of this Act and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961', framed by the RBI. The corporation's head office is in Mumbai, and its day-to-day operations are overseen by an Executive Director.
The DICGC is an integral part of India's financial safety net, protecting small depositors from losses due to bank failures or 'All Inclusive Directions' (AID) imposed by the RBI. The deposit insurance programme provides coverage of up to Rs 5 lakh per individual bank account. The DICGC becomes active in three specific situations: bank liquidation, bank reconstruction or merger, and when the RBI implements AID that limit withdrawals.
The concept of insuring deposits with banks in India was first considered after the banking crises in Bengal, which was supported by the Rural Banking Enquiry Committee. The introduction of deposit insurance in India was catalysed by the failure of Laxmi Bank and the subsequent collapse of the Palai Central Bank.
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Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) has measures in place to protect customers' bank deposits in the event of a bank failure. The RBI has reassured customers that their deposits are safe, with protection provided through the Deposit Insurance and Credit Guarantee Corporation (DICGC). This deposit insurance programme, implemented by the DICGC, covers up to ₹5 lakh per individual bank account.
The DICGC comes into action in three specific scenarios. Firstly, during bank liquidation, it pays the insured sum to the court-appointed liquidator within two months of receiving the claims. Secondly, during bank reconstruction or merger, it covers the gap between the full deposit amount (up to ₹5 lakh) and the amount received under new arrangements. Lastly, the DICGC becomes active when the RBI implements directions that limit withdrawals.
The deposit insurance coverage applies to various deposit types, including savings accounts, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, and NRE accounts. However, it is important to note that certain deposits are not covered by this insurance. These include deposits belonging to foreign governments, central or state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI.
The DICGC is a crucial safeguard for small depositors, ensuring that their money is protected even in the event of financial difficulties or failures of the banks they hold accounts with. The deposit insurance programme provides peace of mind and confidence in the safety of their deposits.
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Insured deposit types
In India, the Deposit Insurance Corporation was established under the Reserve Bank of India (RBI) in 1962. In 1978, the DIC merged with the Credit Guarantee Corporation of India Ltd. (CGCI), which was established in 1971, to form the Deposit Insurance and Credit Guarantee Corporation (DICGC). The DICGC insures deposits in India and provides coverage of up to Rs 5 lakh per individual bank account. This includes various deposit types such as savings accounts, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, and NRE accounts. However, certain types of deposits are not eligible for insurance, including those belonging to foreign or central/state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI.
The DICGC comes into effect in three specific situations:
- During bank liquidation, where it pays the insured sum to the court-appointed liquidator within two months of receiving claims.
- During bank reconstruction or merger, where it covers the gap between the full deposit amount (up to Rs 5 lakh) and the amount received under new arrangements.
- When the RBI implements directions that limit withdrawals.
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Frequently asked questions
The Deposit Insurance Corporation (DIC) commenced functioning under the Reserve Bank of India (RBI) in 1962. Deposit insurance was hiked from ₹100,000 (one lakh rupees, approximately $1,325 as of March 2020) to ₹500,000 (5 lakh rupees, approximately $6,625 as of March 2020) in 2020.
The insurance coverage extends to various deposit types, including savings accounts, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, and NRE accounts.
Certain deposits are not eligible for this protection, such as those belonging to foreign governments, central/state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI.
The DICGC becomes active in three specific situations: during bank liquidation, where it pays the insured sum to the court-appointed liquidator within two months of receiving claims; during bank reconstruction or merger, where it covers the gap between the full deposit amount (capped at Rs 5 lakh) and the amount received under new arrangements; and when the RBI implements directions that limit withdrawals.
