The Union Cabinet has cleared changes to the deposit insurance laws.
The Centre plans to introduce the Deposit Insurance & Credit Guarantee Corporation (Amendment) Bill 2021 soon.
What is deposit insurance?
Currently, in an unlikely event of a bank failing in India, a depositor has a claim to a maximum of Rs 5 lakh per account as insurance cover.
[In 2020, the government raised the insurance amount to Rs 5 lakh from Rs 1 lakh.]
The cover of Rs 5 lakh per depositor is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Depositors having more than Rs 5 lakh in their account have no legal recourse to recover remaining funds in case a bank collapses.
What is the new provision and why?
Despite the safety on funds parked with banks, there is an element of risk for the deposits in case a bank collapses.
Depositors had troubles recently with access to their funds in banks such as Punjab & Maharashtra Co-operative (PMC) Bank, Yes Bank and Lakshmi Vilas Bank that faced RBI’s actions.
The changes made now would provide funds up to Rs 5 lakh to an account holder within 90 daysif a bank comes under RBI moratorium.
Currently, depositors normally end up waiting for 8-10 years before they are able to access their deposits in a distressed bank.
They receive it only after complete liquidationor restructuring of a distressed lender.
With the changes being proposed now, depositors will get insurance money within 90 days.
This 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 closer to the 90th day.
How does it work?
The premium for this insurance is paid by banks to the DICGC, and not be passed on to depositors.
Banks currently pay a minimum of 10 paise on every Rs 100 worth deposits to the DICGC as premium for the insurance cover.
It is now being raised to a minimum of 12 paise.
Source: The Indian Express
Quick Fact
DICGC
DICGC - Deposit Insurance and Credit Guarantee Corporation
DICGC is a fully owned subsidiary of the Reserve Bank of India.
It covers public and private sector banks, local area banks, small finance banks, RRBs, cooperative banks, Indian branches of foreign banks and payments banks.
The functions of the DICGC are governed by the provisions of:
'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' (DICGC Act)
'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961
These were framed by the RBI.
The DICGC Act provides for the establishment of a Corporation for the purpose of insurance of deposits.
It is also intended for guaranteeing of credit facilities and for other matters connected therewith or incidental thereto.
