Deposit Insurance and Credit Guarantee Corporation (DICGC) Bill, 2021

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Recently, the Cabinet approved the Deposit Insurance and Credit Guarantee Corporation Bill, 2021. 

About

• The move came after Punjab and Maharashtra Co-operative (PMC) Bank faced a grave fraud. 
• Subsequently, Yes Bank and Lakshmi Vilas Bank, too, came under stress, leading to their restructuring.
• In a relief to depositors of stressed banks, the Cabinet cleared amendments to the Deposit Insurance Credit Guarantee Corporation (DICGC) Act, which will enable customers to have access to their deposits up to Rs 5 lakh within just 90 days, if their banks go bust and are placed under moratorium.

(Image Courtesy : HT)

Key Points

• Expedited Liquidation: Earlier, account holders had to wait for years till the liquidation or restructuring of a distressed lender to get their deposits that are insured against default. It is now proposed to be done in 90 days.
• Increasing Deposit Insurance Premium: It permits raising the deposit insurance premium by 20% immediately, and maximum by 50%. 
  • The premium is paid by banks to the DICGC. The Insured banks pay advance insurance premiums to the corporation semi-annually within two months from the beginning of each financial half year, based on their deposits as at the end of previous half year.
  • Banks currently pay a minimum of 10 paise on every Rs 100 worth deposits to the DICGC as premium for the insurance cover, which is now being raised to a minimum of 12 paise.
• Deposit Value Coverage: The Rs 5-lakh deposit insurance cover, which was last year raised from Rs 1 lakh, will address 98.3 per cent of all deposit accounts by number, and 50.9 percent of deposits by value
  • Globally, deposit insurance coverage is only 80 per cent globally and it covers only 20-30 percent of deposit value,
• New and Old Banks Inclusion: It will cover banks already under moratorium and those that could come under moratorium. 
  • Within the first 45 days of the bank being put under moratorium, the DICGC would collect all information relating to deposit accounts. 
  • In the next 45 days, it will review the information and repay depositors within a maximum of 90 days.
• Small LLP Definition Expanded: Such entities with contributions (from partners) up to Rs 5 crore and annual turnover up to Rs 50 crore will be categorised as small LLPs; earlier, these limits were set at Rs 25 lakh and Rs 40 lakh, respectively.

Deposit Insurance and Credit Guarantee Corporation

• It was established in 1978 after the merger of Deposit Insurance Corporation (DIC) and Credit Guarantee Corporation of India Ltd. (CGCI) after passing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 by the Parliament.
• It is a wholly-owned arm of the Reserve Bank of India (RBI), which offers deposit insurance. 
• It insures deposit accounts, such as savings, current, recurring, and fixed deposits up to a limit of Rs 5 lakh per account holder of a bank. 
  • If a customer’s deposit amount crosses Rs 5 lakh in a single bank, only up to Rs 5 lakh, including the principal and interest, will be paid by the DICGC if the bank turns bankrupt.
• Coverage: Deposits in public and private sector banks, local area banks, small finance banks, regional rural banks, cooperative banks, Indian branches of foreign banks and payments banks are all insured by the DICGC. 
• Funds: The Corporation maintains the following funds :
  • Deposit Insurance Fund
  • Credit Guarantee Fund
  • General Fund
    • The first two are funded respectively by the insurance premia and guarantee fees received and are utilised for settlement of the respective claims.
    • The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation.

Conclusion

• In order to keep the faith of the public in the banking system and to further motivate them to deposit their money in banks, it was very important for the Central Government to give some insurance on deposits if the bank fails in the future.

Source: IE