Insurance cover on bank FDs, deposits increased to Rs 5 lakh
Context: As part of Budget 2020, FM Nirmala Sitharaman has proposed to increase the limit of insurance cover in case of bank failure on deposits to Rs 5 lakh from Rs 1 lakh.
The proposal come in the wake of crisis at Mumbai-based urban cooperative bank, PMC Bank. What do you need to know about Deposit Insurance? Deposit insurance is the insurance which is provided to provide protection to the depositor’s money by receiving a premium. Deposit Insurance and Credit Guarantee Corporation (DICGC) has been set up by the government under RBI to protect depositors in case a bank fails. It is to be kept in mind that every insured bank pays premium amounting to 0.001% of its deposits to DICGC every year. About DICGC
What? : Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of Reserve Bank of India. When? : It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Why? : It was set up for the purpose of providing insurance of deposits and guaranteeing of credit facilities. DICGC insures all bank deposits, such as saving, fixed, current, recurring deposit for up to the limit of Rs. 500,000 of each deposits in a bank. Governance: The functions of the subsidiary 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 Act. A maximum of Rs 5,00,000 (after the budget of 2020-21) is insured for each user for both principal and interest amount. If the customer has accounts in different banks, all of those accounts are insured to a maximum of Rs 5,00,000. However, if there are more accounts in same bank, all of those are treated as a single account. The insurance premium is paid by the insured banks itself i.e., the benefit of deposit insurance protection is made available to the depositors or customers of banks free of cost. Further, the Corporation has the power to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. What happens to the money of the depositor in case a bank fails? In case a bank is liquidated, depositors are entitled to receive an insurance amount of Rs 1 lakh per individual from the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). This Rs 1 lakh insurance limit includes both principal and interest dues across your savings bank accounts, current accounts, fixed deposits and recurring deposits held with the bank. What is the procedure for depositors to claim the money from a failed bank? There is no direct dealing by DICGC with depositors. Instead, an official liquidator is appointed by the RBI (or the Registrar) on directing that a bank be liquidated. The liquidator will see the winding up process is done with proper care. According to the DICGC Act, the liquidator is required to hand over a list of all the insured depositors (with their dues) to the DICGC within 90 days of taking charge. The DICGC is supposed to pay these dues within 60 days of receiving this list. In FY19, it took an average 1,425 days for the DICGC to receive and settle the first claims on a de-registered bank. Who all are insured by the DICGC? DICGC covers all commercial and co-operative banks, except in Meghalaya, Chandigarh, Lakshadweep and Dadra and Nagar Haveli. Besides, Only primary cooperative societies are not insured by the DICGC. Following types of deposits are not included by DICGC:
- Deposits of foreign governments.
- Deposits of central/state governments.
- Inter-bank deposits.
- Deposits of the state land development banks with the state co-operative bank.
- Any amount due on account of any deposit received outside India.
- Any amount specifically exempted by the DICGC with previous approval of RBI.
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