Protection of Depositors
Protection of Depositors: The Reserve Bank of India’s subsidiary, the Deposit Insurance and Credit Guarantee Corporation (DICGC), is a completely owned entity. It was created on July 15, 1978, in accordance with the Deposit Insurance and Credit Guarantee Corporation Act of 1961, with the intention of providing deposit insurance and guaranteeing credit facilities.
All bank deposits, including savings, fixed, current, and recurring deposits, are insured by the DICGC up to a maximum of Rs. 500,000 for each deposit.
Objects/Legal Framework
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,” were created by the Reserve Bank of India in accordance with the authority granted by sub-section (3) of Section 50 of the Act, govern the subsidiary’s operations.
After the budget for 2020–21, each user is covered up to 5,00,000 for combined principal and interest. All of the customer’s accounts, regardless of whatever bank they are with, are insured up to a total of 5,00,000 in total.
If there are other accounts at the same bank, they are all handled as a single account. The insured banks themselves pay the insurance premium. This indicates that the advantage of deposit insurance protection is provided free of charge to bank depositors or customers.
If an insured bank fails to pay the premium for three successive half-year periods, the Corporation may revoke the bank’s registration. If the bank requests it and pays all premium payments due as of the date of delinquency, plus interest, the Corporation may reinstate the bank’s registration.
Protection of Depositors
Reforms
On March 24, 2011, the Government of India’s Ministry of Finance established the Financial Industry Legislative Reforms Commission (FSLRC) as a body to evaluate and rewrite the legal and institutional framework of the Indian financial sector. The FSLRC advocated a regulatory framework with seven entities, including a deposit insurance-cum regulatory agency, in its report (which was named as Resolution Corporation). The Resolution Corporation (RC), which will operate across the financial sector, will absorb the current DICGC.
The FSLRC concept included a unified resolution company, which will deal with a variety of financial organizations including banks and insurance companies; it will not merely be a bank deposit insurance corporation, drawing on best worldwide practices. It will be concerned with all financial institutions, including banks, insurance providers, defined benefit pension plans, and payment systems, that make very important guarantees to customers.
Even if they don’t have any direct connections to customers, it will be accountable for the financial businesses’ graceful closure.
To implement these measures, the Indian government presented the Financial Resolution and Deposit Insurance bill, 2017 (FRDI bill) in the Lok Sabha during the 2017 monsoon session. There have been several worries over the proposed measure, including:
The DICGC now requires banks to pay a charge for insurance that covers all types of bank deposits up to a maximum of 5,00,000. The depositors of a stressed bank would be compensated by DICGC in the event that it was to be liquidated. The insured amount and the amount a depositor would be reimbursed are not specified in the law, even though it suggests that the banks pay a fee to the Resolution Corporation. The amount that a depositor would get in the event of liquidation is thus unknown.
The bail-in provision mostly served to harm depositors’ interests (as in Cyprus).