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Indian Economy

Deposit Insurance

  • 19 Nov 2019
  • 3 min read

Why in News

Recently, the failure of the Punjab and Maharashtra Co-operative (PMC) Bank reignited the debate on the low level of insurance against the deposits held by customers in Indian banks.

  • Currently, in case of a bank collapse, a depositor can claim an amount up to a maximum of ₹ 1 lakh per account as the insurance cover (even if the deposit in their account is greater than ₹ 1 lakh). This amount is termed ‘deposit insurance’- the insurance cover against the deposits of an individual in banks.
  • The insurance cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
  • Recently, the issue of depositor protection was also in the news when the Financial Resolution and Deposit Insurance (FRDI) Bill was introduced in Parliament in 2017. The FRDI bill became controversial because of its suggestion that bank depositors be asked to share part of the cost of resolution of a failed bank.

Deposit Insurance and Credit Guarantee Corporation

  • DICGC came into existence 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 serves as a deposit insurance and credit guarantee for banks in India.
    • It is a fully owned subsidiary of and is governed by the Reserve Bank of India.
  • DICGC charges 10 paise per ₹ 100 of deposits held by a bank. The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
  • DICGC last revised the deposit insurance cover to ₹ 1 lakh on May 1, 1993, raising it from ₹ 30,000 since 1980. The protection cover of deposits in Indian banks through insurance is among the lowest in the world.
    • The Damodaran Committee on ‘Customer Services in Banks’ (2011) had recommended a five-time increase in the cap to ₹5 lakh due to rising income levels and increasing size of individual bank deposits.
  • Banks, including regional rural banks, local area banks, foreign banks with branches in India, and cooperative banks, are mandated to take deposit insurance cover with the DICGC.

Source: IE

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