Deposit Insurance in India

Background

With the spate of bank failures in independent India putting the depositors' money at risk, India passed DICGC Act in 1961 through which the Deposit Insurance & Credit Guarantee Corporation of India (DICGC) came into existence. DICGC is a wholly owned subsidiary of the RBI and was formed for the purpose of insuring deposits and guaranteeing credit facilities of the commercial banks. After an amendment to the DICGC Act in 1968, insurance coverage was further extended to deposits of co-operative banks as well.

Till last year, the maximum amount covered under deposit insurance was Rs.1.00 lakhs and the same was enhanced to Rs.5.00 lakhs w.e.f. February 2020.

Is Deposit insurance compulsory for all institutions?

Insurance coverage is compulsory for all commercial banks and co-operative banks. No bank can chose to opt out of the coverage. Coverage extends to all commercial banks including all public sector banks, private sector banks, foreign banks, small finance banks, payment banks, Regional Rural banks, co-operative banks etc. (List of all such banks covered under DICGC are available at https://www.dicgc.org.in/FD_ListOfInsuredBanks.html). Co-operative societies are not part of the DICGC coverage as they do not fall under the definition of bank.

Types of deposits covered?

All deposits (including savings account deposits, current account deposits, term deposits, recurring deposits etc.) will be eligible for coverage up to a maximum limit of Rs.5.00 lakhs (against Rs.1.00 lakh earlier) per depositor.

Insurance coverage nitty gritties:

• Insurance coverage is available to both the principal amount as well as the accrued interest up to a maximum of Rs.5.00 lakhs. It is to be noted that the coverage is on the aggregate amount of deposits maintained by the depositor and not on per account basis and therefore, one cannot become eligible for separate insurance coverage of Rs.5.00 lakhs by choosing to open/maintain different deposits in the same bank or different deposits in different branches of the same bank.

However, one can get the insurance coverage on deposits opened with different banks up to a maximum of Rs.5.00 lakhs in each such bank.

• For the purpose of arriving at the eligible amount for insurance coverage of a depositor, the entire deposits held by him/her in the same right and the same capacity as on the date of liquidation or cancelation of the Bank's license or the date on which the scheme of amalgamation / merger / reconstruction comes into force will be considered.
• Deposits held in same right and same capacity means that all the deposits which the individual is maintaining in the same capacity (as an individual depositor or a partner or a director etc.) will be considered separately to arrive at the eligible insurance coverage. Thus, a depositor can maintain deposits in different right and capacity as a individual, HUF karta, partner of a firm, director of a company etc. and still get insurance coverage up to a maximum of Rs.5.00 lakhs under each deposit category stated above. One exception is in case of deposits of the proprietorship firm where the deposits are clubbed along with the individual's other deposits for the purpose of calculation of total insurance coverage.
• In case of more than one joint account deposits are maintained in the same branch or different branch of the same company will be considered as falling under the same category if the order of names in all the deposits is same. However, joint account deposits where the order of depositor names are of different order, each such deposit will be treated as separate.

Who bears the insurance premium?

Deposit insurance premium will be payable by the banks and not by the beneficiaries (depositors). Premium payable is on a half yearly basis based on the average deposits held. DICGC can choose to withdraw the insurance coverage of a particular bank If the bank fails to pay the insurance premium for a consecutive 3 consecutive half yearly periods and when the withdrawal of the insurance coverage happens, the same will be notified to the public through newspapers.

How can the depositors claim insurance money in the event of bank failure?

The depositors cannot make claim directly to the DICGC in the event of a bank failure. In an event of a bank failure, the claim for insurance payment should be made by the liquidators of the failed bank in a prescribed format to DICGC. DICGC is not liable to make the payment directly to the depositors but has to make the claim money to the liquidator who will in turn distribute to the depositors.

The author can also be reached at arthaconsultingservices@gmail.com