Articles 338 views July 30, 2021

Addressing the woes of many depositors of stressed banks (Punjab and Maharashtra Co-operative Bank, Yes Bank and Lakshmi Vilas Bank), the Union Cabinet approved amendments in the Deposit Insurance and Credit Guarantee Corporation Act (DICGC) Act, 1961. This amendment will also protect the interest of all the depositors in the banks.

With the new amendments, account holders of the stressed banks will get up to INR 5 lakh insurance (inclusive of both principal and interest) within 90 days of the moratorium. Here, moratorium means when everything is frozen and depositors cannot withdraw the money from their accounts. Now, a depositor can withdraw up to INR 5 lakh within 90 days even if there is a moratorium on a bank. It will make sure that the depositors of stressed banks will no longer face any trouble accessing their money.

This amendment will cover 98.3% of all deposit accounts and 50.98% of the overall deposit value as compared to 80% and 20-30% across the globe, respectively, said Finance Minister Nirmala Sitharaman in the cabinet briefing. Continue reading to have more information about the new amendment of the DICGC Act, 1961.

How Will Depositors Get Money Back in 90 Days?

After the first 45 days of the moratorium, the bank will collect all depositor claims and submit them to the proposed DICGC. The corporation will process the claims in real-time by checking the handed-over accounts. After checking them, it will hand over the money in approximately 90 days to the depositors.

Usually, it takes around eight to ten years to get money under insurance if a bank faces liquidation. With the new amendments, it will take a maximum of 90 days.

When Was the Amendment Announced?

Nirmala Sitharaman announced this amendment to the DICGC Act in last year’s Union Budget. Before the amendment, the insurance cover on bank deposits was fixed at INR 1 lakh if a bank faces liquidation. Now, it stands at INR 5 lakh including both the principal and interest of a depositor.

Since April 2020, lenders have been paying a premium of 12 paise per INR 100 deposit that was ten paise earlier. The Union Cabinet also announced that the premium amount cannot go over 15 paise per INR 100 deposit. DICGC collects the premiums (based on the banks’ assessable deposits) from the insured banks

Note: Insured banks have to pay the premium themselves and cannot pass this on to the depositors.

Who All Will DICGC Cover?

The DICGC will insure all the bank deposits that will include savings, fixed deposits (FDs), current or recurring deposits (RDs). The corporation will also cover banks that have been already placed under moratorium as well as commercial, public and private sector banks. Even branches of foreign banks in India will be covered.

What is the Role of the Deposit Insurance Fund in the Settlement?

Deposit Insurance Fund (DIF) settles the claims of depositors of banks under liquidation, reconstruction and amalgamation. It is built out of the premium (as mentioned earlier) by the banks and the coupon income received on the investments in central government securities. As on March 31, 2020, the amount in DIF stands at INR 1,10,380 crore, while it was at INR 93,750 crore on March 31, 2019.

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