Deposit Insurance and Credit Guarantee Corporation (DICGC) – An Overview
Depositors in banks and financial institutions face the risk of losing their hard-earned savings in case the bank or financial institution fails or goes bankrupt. To protect the depositors from such risks, the Deposit Insurance and Credit Guarantee Corporation (DICGC) was established in India in 1961. In this blog post, we will discuss DICGC in detail, including its objectives, functions, coverage, and benefits.
What is DICGC, and What are Its Objectives?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of the Reserve Bank of India (RBI). The main objective of DICGC is to provide deposit insurance to depositors in banks and financial institutions. The corporation aims to promote financial stability and consumer confidence in the banking system by protecting depositors from losses arising out of the failure of a bank or financial institution.
Functions of DICGC
The main functions of DICGC are as follows:
- Providing Deposit Insurance: DICGC provides insurance cover to depositors in banks and financial institutions. The insurance covers all types of deposits, including savings, current, fixed, and recurring deposits. The insurance cover is up to Rs. 5 lakhs per depositor per bank.
- Managing the Deposit Insurance Fund: DICGC manages the Deposit Insurance Fund (DIF). The DIF is created by collecting insurance premiums from the banks and financial institutions. The DIF is used to pay the insured deposits in case a bank or financial institution fails.
- Monitoring Banks and Financial Institutions: DICGC monitors the financial health of banks and financial institutions. It collects information on their financial performance, risk management practices, and other relevant factors. This helps DICGC in identifying banks and financial institutions that are at risk of failure.
- Resolving Failed Banks and Financial Institutions: In case a bank or financial institution fails, DICGC takes over the management of the failed entity. DICGC then takes appropriate steps to resolve the failed entity, including selling it to another bank or financial institution.
Coverage and Benefits of DICGC
DICGC provides deposit insurance cover to depositors in banks and financial institutions. The insurance cover is up to Rs. 5 lakhs per depositor per bank. The insurance covers all types of deposits, including savings, current, fixed, and recurring deposits.
The insurance cover is provided to both the principal and interest amount of the deposits. The insurance cover is applicable to all banks and financial institutions that are insured by DICGC. Currently, all banks and financial institutions that are licensed by the RBI are insured by DICGC.
In case a bank or financial institution fails, DICGC pays the insured amount to the depositors. The payment is made within 90 days of the failure of the bank or financial institution.
How does DICGC calculate the insurance premium?
DICGC collects the insurance premium from banks and financial institutions that are insured by the corporation. The insurance premium is calculated based on the total deposits held by the bank or financial institution. The insurance premium rates are reviewed periodically and may be revised based on the financial health of the banks and financial institutions.
The insurance premium rates are currently set at 0.05% of the total deposits held by the bank or financial institution. The premium rates for small banks and financial institutions are lower than those for large banks and financial institutions.
The insurance premium collected by DICGC is credited to the Deposit Insurance Fund (DIF). The DIF is used to pay the insured deposits in case a bank or financial institution fails.
What are the benefits of deposit insurance?
Deposit insurance provides several benefits to depositors, including:
- Protection against loss: Deposit insurance protects depositors from the risk of losing their savings in case a bank or financial institution fails.
- Confidence in the banking system: Deposit insurance promotes confidence in the banking system by assuring depositors that their savings are safe and secure.
- Encourages savings: Deposit insurance encourages people to save their money in banks and financial institutions by providing them with a sense of security.
- Financial stability: Deposit insurance promotes financial stability by preventing a run on banks and financial institutions in case of a crisis.
- Facilitates financial inclusion: Deposit insurance facilitates financial inclusion by making it easier for people to open bank accounts and save their money.
Conclusion
DICGC is a crucial institution for maintaining the stability of the Indian banking system. Deposit insurance provided by DICGC ensures that depositors do not lose their hard-earned savings in case a bank or financial institution fails. The deposit insurance scheme promotes financial stability and consumer confidence in the banking system. Deposit insurance provides several benefits to depositors, including protection against loss, confidence in the banking system, encouragement of savings, financial stability, and facilitation of financial inclusion.
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Frequently Asked Questions (FAQs)
- What is DICGC?
DICGC stands for Deposit Insurance and Credit Guarantee Corporation. It is a subsidiary of the Reserve Bank of India (RBI) and provides deposit insurance to depositors in banks and financial institutions.
- What types of deposits are covered by DICGC?
DICGC covers all types of deposits, including savings, current, fixed, and recurring deposits.
- What is the insurance cover provided by DICGC?
The insurance cover provided by DICGC is up to Rs. 5 lakhs per depositor per bank. The insurance covers both the principal and interest amount of the deposits.
- Are all banks and financial institutions insured by DICGC?
All banks and financial institutions that are licensed by the RBI are insured by DICGC.
- How is the insurance premium calculated by DICGC?
The insurance premium is calculated based on the total deposits held by the bank or financial institution. The premium rates are currently set at 0.05% of the total deposits held by the bank or financial institution.
- What happens if a bank or financial institution fails?
In case a bank or financial institution fails, DICGC takes over the management of the failed entity. DICGC then takes appropriate steps to resolve the failed entity, including selling it to another bank or financial institution. DICGC pays the insured amount to the depositors within 90 days of the failure of the bank or financial institution.
- What is the role of DICGC in promoting financial stability?
DICGC plays a crucial role in promoting financial stability by monitoring the financial health of banks and financial institutions. It collects information on their financial performance, risk management practices, and other relevant factors. This helps DICGC in identifying banks and financial institutions that are at risk of failure.
- How does deposit insurance promote financial inclusion?
Deposit insurance facilitates financial inclusion by making it easier for people to open bank accounts and save their money. It provides a sense of security to depositors and encourages them to save their money in banks and financial institutions.
- Can a depositor claim insurance cover from multiple banks?
Yes, a depositor can claim insurance cover from multiple banks if they hold deposits in multiple banks. The insurance cover is up to Rs. 5 lakhs per depositor per bank.
- How can a depositor know if their bank is insured by DICGC?
All banks and financial institutions that are insured by DICGC are required to display a notice to this effect in their premises. Depositors can also check with the bank or financial institution whether they are insured by DICGC.
