The concept of insuring deposits kept with banks received attention for the first time in the year 1948 after the banking crises in Bengal. The question came up for reconsideration in the year 1949, but it was decided to hold it in abeyance till the Reserve Bank of India ensured adequate arrangements for inspection of banks. Subsequently, in the year 1950, the Rural Banking Enquiry Committee also supported the concept. Serious thought to the concept was, however, given by the Reserve Bank of India and the Central Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961. After it was passed by the Parliament, the Bill got the assent of the President on December 7, 1961 and the Deposit Insurance Act, 1961 came into force on January 1, 1962.
The Deposit Insurance Scheme was initially extended to functioning commercial banks only. This included the State Bank of India and its subsidiaries, other commercial banks and the branches of the foreign banks operating in India.
Since 1968, with the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was required to register the ‘eligible co-operative banks’ as insured banks under the provisions of Section 13 A of the Act. An eligible co-operative bank means a co-operative bank (whether it is a State co-operative bank, a Central co-operative bank or a Primary co-operative bank) in a State which has passed the enabling legislation amending its Co-operative Societies Act, requiring the State Government to vest power in the Reserve Bank to order the Registrar of Co-operative Societies of a State to wind up a co-operative bank or to supersede its Committee of Management and to require the Registrar not to take any action for winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the Reserve Bank of India.
Further, the Government of India, in consultation with the Reserve Bank of India, introduced a Credit Guarantee Scheme in July 1960. The Reserve Bank of India was entrusted with the administration of the Scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organization (CGO) for guaranteeing the advances granted by banks and other Credit Institutions to small scale industries. The Reserve Bank of India operated the scheme up to March 31, 1981.
The Reserve Bank of India also promoted a public limited company on January 14, 1971, named the Credit Guarantee Corporation of India Ltd. (CGCI). The main thrust of the Credit Guarantee Schemes, introduced by the Credit Guarantee Corporation of India Ltd., was aimed at encouraging the commercial banks to cater to the credit needs of the hitherto neglected sectors, particularly the weaker sections of the society engaged in non-industrial activities, by providing guarantee cover to the loans and advances granted by the credit institutions to small and needy borrowers covered under the priority sector.
With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (DIC & CGCI) were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. Consequently, the title of Deposit Insurance Act, 1961 was changed to ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961 ‘.
Effective from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India’s credit guarantee scheme. With effect from April 1, 1989, guarantee cover was extended to the entire priority sector advances, as per the definition of the Reserve Bank of India. However, effective from April 1, 1995, all housing loans have been excluded from the purview of guarantee cover by the Corporation.
Legal Framework / Objective
The functions of the DICGC are governed by the provisions of ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961’ (DICGC Act) and ‘The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961’ framed by the Reserve Bank of India in exercise of the powers conferred by sub-section (3) of Section 50 of the said Act.
The preamble of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 states that it is an Act to provide for the establishment of a Corporation for the purpose of insurance of deposits and guaranteeing of credit facilities and for other matters connected therewith or incidental thereto.
The authorized capital of the Corporation is 50 crore, which is fully issued and subscribed by the Reserve Bank of India (RBI). The management of the Corporation vests with its Board of Directors, of which a Deputy Governor of the RBI is the Chairman. As per the DICGC Act, the Board shall consist of, besides the Chairman, (i) one Officer (normally in the rank of Executive Director) of the RBI, (ii) one Officer from the Central Government, (iii) five Directors nominated by the Central Government in consultation with the RBI, three of whom are persons having special knowledge of commercial banking, insurance, commerce, industry or finance and two of whom shall be persons having special knowledge of, or experience in co-operative banking or co-operative movement and none of the directors should be an employee of the Central Government, or the RBI or the Corporation or a director or an employee of a banking company or a co-operative bank, or otherwise actively connected with a banking company or a co-op erative bank, and (iv) four Directors, nominated by the Central Government in consultation with the RBI, having special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law or small scale industry or any other matter which may be considered to be useful to the Corporation.
The Head Office of the Corporation is at Mumbai.
Types of Deposits Covered
DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits.
1)Deposits of foreign Governments;
2)Deposits of Central/State Governments;
4)Deposits of the State Land Development Banks with the State co-operative banks;
5)Any amount due on account of and deposit received outside India
6)Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.
Maximum deposit amount insured
Each depositor is insured up to a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same capacity and same right as on the date of liquidation/cancellation of bank’s license or the date on which the scheme of amalgamation/merger/reconstruction comes into force. The deposits kept in different branches of the bank are aggregated for the purpose of insurance cover and a maximum amount up to Rupees one Lakh is paid.
The Corporation maintains the following Funds :
1)Deposit Insurance Fund
2)Credit Guarantee Fund
The first two are funded respectively by the insurance premia and guarantee fees received and are utilised for settlement of the respective claims.The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation.
The surplus balances in all the three Funds are invested in Central Government securities which is the only investment permissible under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the income derived out of such investments is credited to the respective Funds. Inter-Fund transfer is permissible and if there is a shortfall in one of the Funds, it is made good by transfer from either of the other two Funds.
The Corporation has adopted from 1987, the system of actuarial valuation of the liabilities of Deposit Insurance and Credit Guarantee Funds every year. The Corporation has become assessable for income tax starting from the Assessment Year 1988-89.