What is DICGC? Why is it important?

It was founded in 1978 after the Parliament passed the Deposit Insurance and Credit Guarantee Corporation Act, 1961, that merged the Deposit Insurance Corporation (DIC) and the Credit Guarantee Corporation of India Ltd. (CGCI).

If you are preparing to learn information about current affairs for the current affairs quiz for the UPSC or IAS exam, the DICGC is a topic you should know. Knowledge about DICGC will help you tackle questions from the UPSC syllabus for the CSE prelims that can be asked in the UPSC 2022 exam.

  • It is a fully-owned subsidiary of Reserve Bank of India and provides deposit insurance.
  • It protects deposit accounts up to a ceiling of INR 5 lakh per bank account holder.
  • If a deposit balance of a bank account holder in a single bank exceeds INR 5 lakh, the DICGC will pay up to INR 5 lakh, comprising interest and principal, if the bank goes bankrupt.

DICGC full form – Deposit Insurance and Credit Guarantee Corporation Bill.

The information discussed further below is relevant for civil services exam aspirants for the preliminary examination.

Coverage

Deposit insurance coverage with the DICGC is mandatory for all banks, including local banks, cooperative banks, regional rural banks, foreign banks residing in India.

Types of deposits

Excluding the following categories of deposits, the DICGC guarantees all bank deposits, including saving, fixed, current, and recurring deposits.

  • Government deposits from other countries.
  • Deposits that the federal and state governments make.
  • Deposits that are made between banks.
  • Any sum owing as a result of a deposit made outside of India.
  • Any amount that has been officially excluded by an entity with the RBI’s prior consent.

Funds

The Corporation holds the following funds:

  1. Credit guarantee fund
  2. Deposit insurance fund
  3. General fund
  • The insurance premiums finance the first two and guarantee fees collected.
  • The Corporation’s establishment and administration expenditures are financed from the General Fund.

Also, refer to the following links for exam preparation:

Why is it in News?

The Deposit Insurance and Credit Guarantee Corporation Bill, 2021, was recently endorsed by the Union Cabinet.

Background

  • The action was taken in response to a major fraud at Punjab and Maharashtra Co-operative Bank.
  • As a result, Lakshmi Vilas Bank, Yes Bank were also put under pressure, forcing them to restructure.
  • The Cabinet approved modifications to the DICGC Act, allowing customers to retrieve up to INR 5 lakh within 90 days if their banks go bankrupt and are kept under suspension.

Key points

The following points will explain some important facts about DICGC for your IAS preparation:

Quick Liquidation- Formerly, bank customers had to wait years to protect their savings against default if a distressed lender was liquidated or restructured. It is currently scheduled that the operation will be completed in 90 days.

Increasing the premium for deposit insurance- The DICGC Act allows for an immediate 20 per cent increase in the deposit insurance rate, with a maximum increase of 50 per cent.

  • The DICGC receives the premium from banks. The insured banks pay the organization advance insurance premiums twice a year.
  • Banks typically pay the DICGC a minimum of 10 paise per INR 100 as an insurance premium, which is now increased to a minimum of 12 paise and a maximum of 15 paise.
  • This is simply an enabling clause; any adjustment in the premium charged would require agreement with the RBI and the government’s consent.

Deposit Value Protection – It would release a deposit of up to INR 5 lakh to a bank account holder within 90 days.

  • In 2020, the deposit insurance cover of INR 5-lakh was increased from INR 1 lakh. It will cover 98.3 per cent of all deposit accounts in terms of number and 50.9 percent of deposits in terms of value.

Inclusion of both new and existing banks- The DICGC will apply to banks that have already been placed under a moratorium and those that may be placed under one in the future.

  • A moratorium is a legally recognized period during which the fulfillment of a legal duty or the settlement of a debt is delayed.
  • All kinds of banks will be covered, including rural and cooperative banks.
  • The DICGC will gather all deposit bank account details throughout the first 45 days of placing the lender under suspension.
  • It will analyze the facts over the next 45 days and reimburse depositors within 90 days.

Small LLP Scope Enhanced – Small LLPs will be defined as entities with contributions of up to INR 5 crore and annual sales of up to INR 50 crore; before, these limitations were fixed at INR 25 lakh and INR 40 lakh, correspondingly.

Conclusion

To preserve the banking system’s faith and encourage people to put their money in banks, the Central Government needed to provide assurances about deposits made.

Furthermore, candidates can get the latest exam updates, study material and preparation tips at BYJU’S.

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