THE CONTEXT: The Union Cabinet on Wednesday approved amendment to the DICGC Act on July 29.
Analysis:
- This will provide account holders access to up to Rs 5 lakh funds within 90 days of a bank coming under moratorium to ensure timely support to depositors.
- Last year, the government raised insurance cover on deposit fivefold to Rs 5 lakh to provide support to depositors of ailing lenders like Punjab and Maharashtra Co-operative (PMC) Bank.
- Following the collapse of PMC Bank, Yes Bank and Lakshmi Vilas Bank too came under stress, leading to restructuring by the regulator and the government.
- The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 is the budget announcement made by the finance minister.
- Once the Bill becomes law, it will provide immediate relief to thousands of depositors, who had their money parked in stressed lenders such as PMC Bank and other small cooperative banks.
- As per the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and the liquidation process starts.
ABOUT DICGC
- Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India (RBI) created as per The Deposit Insurance and Credit Guarantee Corporation Act, 1961
- It provides deposit insurance that works as a protection cover for bank deposit holders when the bank fails to pay its depositors.
- The agency insures all kinds of deposit accounts of a bank, such as savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account holder per bank.
- In case an individual’s deposit amount exceeds Rs.5 lakh in a single bank, only Rs.5 lakh, including the principal and interest, will be paid by DICGC if the bank becomes bankrupt.
- DICGC protects depositors’ money kept in all commercial and foreign banks located in India; central, state, and urban co-operative banks; regional rural banks; and local banks, provided that the bank has opted for DICGC cover.
WHAT DICGC DOES NOT COVER?
- Deposits of state or Central governments
- Deposits from foreign governments
- State land development banks depositing with the state co-operative bank
- Inter-bank deposits
- Funds that are due on account of India and deposits received outside India
- Funds exempted by the corporation with the previous approval from RBI
