Deposit Insurance and Credit Guarantee Corporation (DICGC)

GS 3 – ECONOMY

Context:

The Finance Ministry is considering raising the deposit insurance limit, which is currently ₹5 lakh, under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961.

About DICGC:

What is it?
DICGC is a wholly owned subsidiary of the Reserve Bank of India (RBI) that provides deposit insurance to protect bank depositors in case of bank failures.

Historical Background:

• The idea of deposit insurance was first proposed in 1948 following banking crises in Bengal.
• It was reconsidered in 1960 after the failure of Palai Central Bank and Laxmi Bank.
• The Deposit Insurance Corporation Act, 1961, came into effect on January 1, 1962.
• In 1978, it merged with the Credit Guarantee Corporation, forming the DICGC, which operates under the Ministry of Finance.

Administration:

• Falls under the Department of Financial Services, Ministry of Finance.
• Aims to safeguard depositors’ funds and enhance confidence in the banking sector.

Functions of DICGC:

1. Deposit Insurance: Protects depositors against bank failures.
2. Credit Guarantee: Supports institutions involved in priority sector lending.
3. Financial Monitoring: Assesses the financial health of banks and intervenes when necessary.

Key Features of Deposit Insurance:

• Current Insurance Limit: Deposits up to ₹5 lakh (including both principal and interest) per depositor, per bank.
• Coverage: Includes commercial banks, regional rural banks (RRBs), foreign banks operating in India, and cooperative banks.

What is Covered?

• Savings accounts, fixed deposits, current accounts, and recurring deposits.

What is Not Covered?

• Deposits of foreign governments, central and state governments, and inter-bank deposits.
• Deposits with State Land Development Banks.
• Deposits held outside India or exempted with RBI approval.

Deposits Across Multiple Bank Branches:

• If a depositor has accounts across different branches of the same bank, they are considered as a single deposit under the insurance coverage.