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Deposit Insurance

A Guide to the deposit insurance and credit guarantee corporation (DICGC)

Outline of the System and Q & A

Q1 Which banks are insured by the DICGC?

Commercial Banks: All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC.

Cooperative Banks: All State, Central and Primary cooperative banks, also called urban cooperative banks, functioning in States / Union Territories which have amended the local Cooperative Societies Act empowering the Reserve Bank of India (RBI) to order the Registrar of Cooperative Societies of the State / Union Territory to wind up a cooperative bank or to supersede its committee of management and requiring the Registrar not to take any action regarding winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the Reserve Bank are covered under the Deposit Insurance System. At present all co-operative banks other than those from the States of Meghalaya, and the Union Territories of Chandigarh, Lakshadweep and Dadra and Nagar Haveli are covered under the deposit insurance system of DICGC.

Primary cooperative societies are not insured by the DICGC.

Q 2 What does the DICGC insure?

In the event of a bank failure, DICGC protects bank deposits that are payable in India.
The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.
(i)  Deposits of foreign Governments;
(ii) Deposits of Central/State Governments;
(iii)Inter-bank deposits;
(iv) Deposits of the State Land Development Banks with the State co-operative bank;
(v) Any amount due on account of any deposit received outside India
(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.

Q 3 What is the maximum deposit amount insured by the DICGC?

Each depositor in a bank is insured upto 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 licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Q 4 How will I know whether my bank is insured by the DICGC or not?

The DICGC while registering the banks as insured banks furnishes them with printed leaflets for display giving information relating to the protection afforded by the Corporation to the depositors of the insured banks. In case of doubt, depositor should make specific enquiry from the branch official in this regard.

Q 5 What is the ceiling on amount of Insured deposits kept by one person in different branches of a bank?

The deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount upto Rupees one lakh is paid.

Q 6 Does the DICGC insure just the principal on an account or both principal and accrued interest?

The DICGC insures principal and interest upto a maximum amount of Rs. One lakh. For example, if an inpidual had an account with a principal amount of Rs.95,000 plus accrued interest of Rs.4,000, the total amount insured by the DICGC would be Rs.99,000. If, however, the principal amount in that account was Rs. One lakh, the accrued interest would not be insured, not because it was interest but because that was the amount over the insurance limit.

Q 7 Can deposit insurance be increased by depositing funds into several different accounts all at the same bank?

All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. If the funds are in different types of ownership or are deposited into separate banks they would then be separately insured.

Q 8 What is a single ownership account?

A single (or inpidual) ownership account is an account owned by one person. Such accounts include those in the owner’s name; those established for the benefit of the owner by agents, nominees, guardians, custodians, or conservators; and those established by a business that is a sole proprietorship.

Q 9 Are deposits in different banks separately insured?

Yes. If you have deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank.

Q 10 If I have my funds on deposit at two different banks, and those two banks are closed on the same day, are my funds added together, or insured separately?

Your funds from each bank would be insured separately, regardless of the date of closure.

Q 11 What is the meaning of deposits held in the same capacity and same right; and deposits held in different capacity and different right?

If an inpidual opens more than one deposit account in one or more branches of a bank, e.g. Shri S. K. Pandit opens one or more savings/current account and one or more fixed/recurring deposit accounts etc., all these are considered as accounts held in the same capacity and in the same right. Therefore, the balances in all these accounts are aggregated and maximum insurance cover is available upto rupees one lakh.

If Shri S. K. Pandit holds other deposit accounts in his capacity as a partner of a firm or guardian of a minor or director of a company or trustee of a Trust or a joint account, say with his wife Smt. S. K. Pandit, in one or more branches of the bank then such accounts are considered as held in different capacity and different right. Accordingly, such deposits accounts will also enjoy the insurance cover upto rupees one lakh separately.

It is further clarified that the deposit held in the name of the proprietary concern where a depositor is the sole proprietor and the deposit held in his inpidual capacity are aggregated and insurance cover is available upto rupees one lakh in maximum.

Illustrations

Deposits held in different capacities

 

Savings A/C

Current A/C

FD A/C

Total Deposits

Deposits Insured

Shri S. K. Pandit (Inpidual)

17,200

22,000

80,000

1,19,200

1,00,000

Shri S. K. Pandit (Partner of ABC & Co.)

 

75,000

50,000

1,25,000

1,00,000

Shri S. K. Pandit (Guardian for Master Ajit)

7,800

 

80,000

87,800

87,800

Shri S. K. Pandit (Director, J.K. Udyog Ltd.)

 

2,30,000

45,000

2,75,000

1,00,000

Shri S. K. Pandit
Jointly with Smt. K. A. Pandit

7,500

1,50,000

50,000

2,07,500

1,00,000

Deposits held in joint accounts (revised w.e.f. April 26, 2007)

If more than one deposit accounts (Savings, Current, Recurring or Fixed deposit) are jointly held by inpiduals in one or more branches of a Bank say three inpiduals A, B & C hold more than one joint deposit accounts in which their names appear in the same order then all these accounts are considered as held in the same capacity and in the same right. Accordingly, balances held in all these accounts will be aggregated for the purpose of determining the insured amount within the limit of Rs.1 lakh.

However, if inpiduals open more than one joint accounts in which their names are not in the same order for example, A, B and C; C, B and A; C, A and B; A, C and B; or group of persons are different say A, B and C and A, B and D etc. then, the deposits held in this joint accounts are considered as held in the different capacity and different right. Accordingly, insurance cover will be available separately upto rupees one lakh to every such joint account where the names appear in different order or names are different.

Illustrations

Deposits held in joint accounts

Account (i) (Savings or Current A/C)

First a/c holder- "A"
Second a/c holder - "B"

Maximum insured amount upto Rs.1 lakh

Account (ii)

First a/c holder - "A"
Second a/c holder - "C"

Maximum insured amount upto Rs.1 lakh

Account (iii)

First a/c holder - "B"
Second a/c holder - "A"

Maximum insured amount upto Rs.1 lakh

Account (iv) at Branch 'X' of the bank

First a/c holder - "A"
Second a/c holder - "B"
Third a/c holder - "C"

Maximum insured amount upto Rs.1 lakh

Account (v)

First a/c holder - "B"
Second a/c holder - "C"
Third a/c holder - "A"

Maximum insured amount upto Rs.1 lakh

Account (vi)
Recurring or
(Fixed deposit)

First a/c holder - "A"
Second a/c holder - "B"

The account will be clubbed with the a/c at (i)

Account (vii)
at Branch 'Y' of the bank

First a/c holder – "A"
Second a/c holder – "B"
Third a/c holder – "C"

The account will be clubbed with the a/c at (iv)

Account (viii)

First a/c holder – "A"
Second a/c holder – "B"
Third a/c holder – "D"

Maximum insured amount upto Rs.1 lakh

Q 12 Can the bank deduct the amount of dues payable by the depositor?

Yes. Banks have the right to set off their dues from the amount of deposits. The deposit insurance is available after netting of such dues.

Q 13 Who pays the cost of deposit insurance?

Deposit insurance premium is borne entirely by the insured bank.

Q 14 When is the DICGC liable to pay?

If a bank goes into liquidation: The DICGC is liable to pay to each depositor through the liquidator, the amount of his deposit upto Rupees one lakh within two months from the date of receipt of claim list from the liquidator.

If a bank is reconstructed or amalgamated / merged with another bank: Where in respect of an insured bank a scheme of compromise or arrangement or of reconstruction or amalgamation has been sanctioned by any competent authority and the said scheme provides for each depositor being paid or credited with, on the date on which the scheme comes into force, an amount which is less than the original amount and also the specified amount, the Corporation shall be liable to pay to every such depositor in accordance with the provisions of section 18 of DICGC Act an amount equivalent to the difference between the amount so paid or credited and the original amount, or the difference between the amount so paid or credited and the specified amount, whichever is less:

Provided that where any such scheme also provides that any payment made to a depositor before the coming into force of the scheme shall be reckoned towards the payment due to him under that scheme, then the scheme shall be deemed to have provided for that payment being made on the date of its coming into force.

Q 15 Does the DICGC directly deal with the depositors of failed banks?

No. In the event of a bank's liquidation, the liquidator prepares depositor wise claim list and sends it to the DICGC. After scrutiny the DICGC pays the money to the liquidator who is liable to pay to the depositors. In the case of amalgamation / merger of banks, the amount due to each depositor is paid to the transferee bank.

Q 16 Can any insured bank withdraw from the  DICGC coverage?

No. The deposit insurance scheme is compulsory and no bank can withdraw from it.

Q 17 Can the DICGC withdraw deposit insurance coverage from any bank?

The Corporation may cancel the registration of an insured bank if it fails to pay the premium for three consecutive half year periods. In the event of the DICGC withdrawing its coverage from any bank for default in the payment of premium the public will be notified through newspapers.

Registration of an insured bank stands cancelled if the bank is prohibited from receiving fresh deposits; or its licence is cancelled or a licence is refused to it by the RESERVE BANK; or it is wound up either voluntarily or compulsorily; or it ceases to be a banking company or a co-operative bank within the meaning of Section 36A(2) of the Banking Regulation Act, 1949; or it has transferred all its deposit liabilities to any other institution; or it is amalgamated with any other bank or a scheme of compromise or arrangement or of reconstruction has been sanctioned by a competent authority and the said scheme does not permit acceptance of fresh deposits. In the event of the cancellation of registration of a bank, deposits of the bank remain covered by the insurance till the date of the cancellation.

Q 18 What will be the Corporation’s liability to the banks on de-registration.

The Corporation has deposit insurance liability on liquidation etc. of "Insured banks" i.e. banks which have been de-registered (a) on account of prohibition on receiving fresh deposits or (b) on cancellation of license or it is found that license can not be granted. The liability of the Corporation in these cases is limited to the extent of deposits as on the date of cancellation of registration of bank as an insured bank.

On liquidation etc. of other de-registered banks i.e. banks which have been de-registered on other grounds such as non payment of premium or their ceasing to be eligible co-operative banks under section 2(gg) of the DICGC Act, 1961, the Corporation will have no liability.

 
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