Bank deposit insurance programme: – INSIGHTSIAS

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GS Paper 3:

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

 

Context:

The Central government has highlighted the significance of increase in bank deposit insurance cover, in case of problems occurring such as closure, from Rs 1 lakh to Rs 5 lakh. PM Modi is to address the nation on Bank Deposit Insurance.

 

Background:

Earlier, there used to be a bank deposit insurance cover of Rs 1 lakh for the deposit of the same amount or more under the ‘Deposit Insurance Credit Guarantee Scheme’.

 

What is deposit insurance? How is it regulated in India?

  • Deposit insurance is providing insurance protection to the depositor’s money by receiving a premium.
  • The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a bank fails.
  • DICGC charges 10 paise per ₹100 of deposits held by a bank. The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
  • DICGC last revised the deposit insurance cover to ₹5 lakh in Feb, 2020, raising it from ₹ 1 lakh since 1993.

 

Deposit Insurance- Coverage:

  • Deposit insurance covers all deposits such as savings, fixed, current, recurring deposits, etc. in all commercial banks, functioning in India.
  • Deposits in State, Central and Primary cooperative banks, functioning in States/Union Territories are also covered.

 

What is the procedure for depositors to claim the money from a failed bank?

  • The DICGC does not deal directly with depositors.
  • The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.
  • Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge.
  • The DICGC is supposed to pay these dues within two months of receiving this list.

 

The DICGC does not include the following types of deposits:

  1. Deposits of foreign governments.
  2. Deposits of central/state governments.
  3. Inter-bank deposits.
  4. Deposits of the state land development banks with the state co-operative bank.
  5. Any amount due on account of any deposit received outside India.
  6. Any amount specifically exempted by the DICGC with previous approval of RBI.

 

InstaLinks:

Prelims Link:

  1. What is deposit insurance? What is the present limit? Who is not covered?
  2. What is DICGC?
  3. RRBs vs Urban cooperative banks.
  4. BASEL norms- important targets.
  5. Where is Basel?
  6. CRAR vs Leverage ratio.
  7. What is priority sector lending?

Mains Link:

Write a note deposit insurance scheme and discuss its significance.

Sources: the Hindu.

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