DICGC – Insurance of Deposits in India

('The Deposit Insurance and Credit Guarantee Corporation ) insures all bank deposits,
such as saving, 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 banks;
(v) Any amount due on account of and deposit received outside India;
(vi) Any amount which has been specifically exempted by the corporation with the
previous approval of the RBI.

Insurance Premium

The rate of insurance premium was initially fixed at .0.05 or 1/20th of 1 per cent per
annum. It was reduced to .0.04 or 1/25th of 1 per cent per annum with effect from 1st
October 1971. However, it was again raised to .0.05 or 1/20th of 1 per cent per annum
with effect from 1st July 1993.Since 2001,the Corporation has had to settle claims for
large amounts due to the failure of banks, particularly in the Co-operative Sector
causing a drain on the Deposit Insurance Fund (DIF). While there is sufficient corpus in
Deposit Insurance Fund for the present, it is necessary to build up a sound DIF in the
long term to protect the interests of the banking system. With this objective the
Corporation decided to enhance the deposit insurance premium from 5 paise per
Rs.100 of assessable deposits per annum to 10 paise per Rs.100 of assessable
deposits per annum in a phased manner over a period of two years. In the first phase,
the premium was raised to 8 paise per Rs.100 of assessable deposits from the financial
year 2004-05 and later to 10 paise per Rs. 100 assessable deposits from the fiancial
year 2005-06. The Corporation will continuously review the DIF and will consider
revising the premium further from time to time with the objective of maintaining a strong
DIF.For further details refer the section - What's New

The premium paid by the insured banks to the Corporation is required to be absorbed
by the banks themselves so that the benefit of deposit insurance protection is made
available to the depositors free of cost. In other words the financial burden on account of
payment of premium should be borne by the banks themselves and should not be
passed on to the depositors. The formula for working out the half-yearly premium is as
follows: -

Deposits in rupees rounded to thousands X 0.05 / 100

The deposits should be rounded off to the nearest thousand Rupees

Interest

An insured bank is required to remit premium not later than the last day of May and
November each year. If it does not pay on or before the stipulated date the premium
payable by it or any portion thereof, it is liable to pay interest at the rate of 8% above the
Bank Rate on the amount of such premium or on the unpaid portion thereof, as the case
may be, from the beginning of the half-year till the date of payment. Interest is
calculated on this basis for the actual number of days of default, taking 1 year as 365
days.

Any amount payable to the Corporation by way of premium or interest on the overdue
amount of premium can be paid in the following manner:
(i) Directly for credit of Deposit Insurance Fund A/C of the Corporation maintained with
RBI, Deposit Accounts Department, Mumbai.
(ii) Remittance by crossed cheque, demand draft or T.T. drawn and payable at Mumbai,
in favour of the Corporation.

Cancellation of Registration

Under Section 15A of the DICGC Act, 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. However, the Corporation may restore the registration of the bank, which
has been de-registered for non-payment of premium, if the concerned bank makes a
request in this behalf and pays all the amounts due by way of premium from the date of
default together with interest.
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 RBI; 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 case of a co-operative bank, its
registration also gets cancelled if it ceases to be an eligible co-operative bank.
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.

Returns

Every insured bank is required to furnish to the Corporation as soon as possible, after
the commencement of each calendar half-year, but not in any event later than the last
day of the first month of the half-year, a statement (Form DI-01) in duplicate, showing
the basis on which the premium payable by that bank has been calculated and the
amount of premium payable by that bank for that half-year. The statement should be
certified as correct by two officials authorised by the bank for this purpose and it has to
furnish to the Corporation specimen signatures of the officers authorised to sign the
statements and returns under the DICGC Act, 1961.

Besides half-yearly return in form DI-01, the insured banks are also required to furnish
to the Corporation, one annual return in Form DI-02 showing the distribution of deposits
according to the size of deposits as on the last day of June every year.

The liquidator of a bank which has been wound up or liquidated and the chief executive
officer of the transferee bank or the insured bank as the case may be in the case of
amalgamation or reconstruction etc. sanctioned by a competent authority, is required to
submit quarterly statements in the prescribed formats to the DICGC indicating the
particulars of utilization of the amounts released by the DICGC, the position of
realisation of assets of the bank and utilization of the amounts thereof and the assets
and liabilities of the bank.

Supervision and Inspection of Insured Banks

The Corporation is empowered (vide Section 35 of the DICGC Act) to have free access
to the records of an insured bank and to call for copies of such records. On
Corporation's request, the RBI is required to undertake / cause the inspection /
investigation of an insured bank.

Settlement of claims

In the event of the winding up or liquidation of an insured bank, every depositor of the
bank is entitled to payment of an amount equal to his deposits held by him in the same
right and in the same capacity in all the branches of that bank put together, standing as
on the date of cancellation of registration (i.e. the date of cancellation of licence or order
for winding up or for liquidation) subject to the set off of his dues to the bank, if any
(Section 16(1) and (3) of the DICGC Act). However, the payment to each depositor is
subject to the limit of the insurance coverage fixed from time to time.

When a scheme of compromise or arrangement or re-construction or amalgamation is

sanctioned for a bank by a competent authority, and the scheme does not entitle the
depositors to get credit for the full amount of the deposit on the date on which the
scheme comes into force, the Corporation pays the difference between the full amount
of deposit or the limit of insurance cover in force at the time, whichever is less, and the
amount actually received by him under the scheme. In these cases also the amount
payable to a depositor is determined in respect of all his deposits held in the same right
and in the same capacity in all the branches of that bank put together subject to the set
off of his dues to the bank, if any (Section 16(2) and (3) of the DICGC Act).

Under the provisions of Section 17(1) of the DICGC Act, the liquidator of an insured
bank which has been wound up or taken into liquidation has to submit to the DICGC a
list showing separately the amount of the deposit in respect of each depositor and the
amount set off, in such a manner as may be specified by the DICGC and certified to be
correct by the liquidator, within three months from the date of his assuming charge of
office.
In the case of a bank for which a scheme of amalgamation/ reconstruction, etc. has
been sanctioned, similar list has to be submitted by the chief executive officer of the
concerned transferee bank or insured bank as the case may be, within three months
from the date on which the scheme of amalgamation/reconstruction, etc. comes into
effect (Section 18(1) of the DICGC Act).

The DICGC is required to pay the amount payable under the provisions of the Act in
respect of the deposits of each depositor within two months from the date of receipt of
such lists. The time-limit is, however, subject to all the information/documents as
required by the Corporation being in order.

On the receipt of an order for the liquidation of a bank or a scheme of

amalgamation/reconstruction etc. for a bank approved by a competent authority, the
Corporation sends detailed guidelines for compilation of the claim list to the
liquidator/chief executive officer of the transferee or insured bank, as the case may be.
Besides, copies of the audited balance sheet and the profit and loss accounts of the
bank as on the date of cancellation of registration i.e. the date of cancellation of
licence /liquidation/amalgamation /reconstruction etc. of the bank are called for, to verify
the authenticity of the total deposits as given in the claim list. A check list relating to the
discrepancies commonly observed in the course of scrutiny of the claim lists is given in
the Annexure.

The DICGC makes the payment of the eligible amount to the liquidator/chief executive
officer of the transferee / insured bank, for disbursement to the depositors. No payment
is made directly to the depositors. However, the amounts payable to the untraceable
depositors i.e. those in respect of whom necessary information is not available, are held
back till the liquidator/chief executive officer is in a position to furnish all the requisite
particulars.

In terms of Section 21(2) of the DICGC Act read with Regulation 22 of the DICGC
General Regulations, the liquidator or the insured bank or the transferee bank as the
case may be, is required to repay the amount to the DICGC within such a time and in
such a manner as may be prescribed, out of the amounts realised from the assets of the
failed bank and other amounts in hand after making provision for the expenses incurred,
as soon as such amounts are sufficient to pay to each depositor one paisa or more in
the Rupee.

Accounts

The Corporation maintains the following Funds:

Deposit Insurance Fund
Credit Guarantee Fund
General 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.

The books of accounts of the Corporation are closed as on 31st March every year. The
affairs of the Corporation are audited by an Auditor appointed by the Board of Directors
with the previous approval of RBI. The audited accounts together with Auditor's report
and a report on the working of the Corporation are required to be submitted to RBI
within 3 months from the closing of accounts. Copies of these documents are also
submitted to the Central Government, which are laid before each House of the
Parliament.

Administration

The Administration Department of DICGC attends to all staff and establishment related
functions in respect of the employees of the Corporation who all are the employees of
RBI. DICGC is treated as an independent salary drawing unit.

The Board Section attends to all matters relating to arranging for the Board Meetings,
preparation of the agenda notes and minutes of the Board Meetings and monitoring
compliance of the decisions taken in these meetings.