Explained: Amendments to the deposit insurance payout laws
The cabinet has approved an amendment to the Deposit Insurance Credit Guarantee Corporation (DICGC) Act recently. Under this, the account holders can access upto 5 lakh deposits within 90 days of a bank coming under moratorium. The Finance Minister Nirmala Sitharaman announced this as a measure to support depositors.
The Government had increased the limit of deposit insurance cover from 1 lakh to 5 lakhs last year. The amendment to Deposit Insurance Credit Guarantee Corporation Act 1961 was announced in the Budget of 2021.
What is DICGC?
- It was formed in 1961 that is 59 years ago and is a fully owned subsidiary of the Reserve Bank of India (RBI).
- Its headquarters are situated in Mumbai India.
- Currently BP Kanungo, the Deputy Chairman of RBI is the Credit and Insurance Institution Executive.
- This institution was formed with the DEposit Insurance and Credit Guarantee Corporation Act 1961.
In short DICGC protects the money of the depositor in the banks. The amount of money has risen in the following years like this:
1962: INR 1500
1968: INR 5000
1970: INR 10,000
1976: INR 20,000
1980: INR 30,000
1993: INR 1,00,000
The amount has seen a rise in the years but following a modest 6% inflation rate the amount should have been raised to 4 Lakhs.
Due to this amendment, the depositors under moratorium would no longer need to wait to access the money in case a bank goes bankrupt. The cabinet has decided that the depositors would be getting their money of INR 5 lakhs in 90 days time anyhow.
In the first 45 days the banks in distress would hand over themselves to the insurance corporation and in 90 days the process would be completed without having to wait for any resolution.
Who all are covered?
All commercial banks and the branches of the foreign banks operational in India are to be included in the purview of this legislation and the scheme would also be applicable to the banks present under the moratorium.
The number of Accounts covered are 98.3% deposit accounts in all banks and in terms of value more than 50% coverage would be provided by DICGC Act. So in case any person has deposited 10 crore, the covered amount would be 5 lakh only. So only 50% of the amount is covered.
In 2021, the RBI presented its annual report in which it included the number of fully protected accounts to be at 247.8 crore by March 2021. This is 98.1% of the total number of accounts which is 252.6 crore. Around 4.8 crore accounts do not still get deposit insurance cover offered by DICGC.
The insured deposit is INR 76,21,258 crore by the end of March 2021 as per RBI. This amount is a mere 50.9% of the assembled deposit of INR 1,49,67,776 crore. This comes to a whopping 49.1% of the amount deposited in various banks that remains uninsured.