What is Deposit Insurance? What Role Does DICGC Play in That?
November 27, 2017
People deposit their hard-earned money with the banks with certain expectations, most important of which is that their money is safe with them. If banks didn’t care about protecting their money, people would rather keep their savings at home.
To give the utmost assurance to the people, banks all across the world have made provisions for ensuring the protection of the funds deposited by the people. One of the most common ways to do this is through deposit insurance.
It was the Federal Deposit Insurance Corporation (FDIC) that came up with a deposit insurance scheme for the first time in the US in 1933. This was a result of the Great Depression during which many banks failed and lost all the money of their depositors.
What is DICGC?
DICGC stands for Deposit Insurance Corporation and Credit Guarantee Corporation, which is a 100% subsidiary of the Reserve Bank of India and was set up to provide deposit insurance to the banks in India.
DICGC was established on July 15, 1978, under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. It provides insurance all kinds of banks deposits such as saving, current, recurring deposit, and fixed deposits. However, the maximum amount of insurance that a bank can apply for each deposit is capped at Rs. 1 lakh.
Not only deposit insurance is mandatory for all banks, they have to pay a premium for the service as well which is 10 paisa for every Rs. 100 insured.
The following are some of the important points to know about DICGC:
- Deposit cover provided by the DICGC is available to not just the commercial banks, but other types of banks are well including regional rural banks (RRBs), co-operative banks, and local area banks (LABs).
- vThe following types of deposits are not covered under the DICGC deposit cover- inter-bank deposits, deposits of foreign governments or central/state governments, an amount due on an account of any deposit received outside India, deposits that a State Land Development Bank has with a State co-operative bank.