Banking and Finance Study Notes
Deposit Insurance and Credit Guarantee
History of DICGC
The concept of insuring deposits kept with banks received
attention for the first time in the year 1948 after the banking crises in
Bengal. The question came up for reconsideration in the year 1949, but it was
decided to hold it in abeyance till the Reserve Bank of India ensured adequate
arrangements for inspection of banks. Subsequently, in the year 1950, the Rural
Banking Enquiry Committee also supported the concept. Serious thought to the
concept was, however, given by the Reserve Bank of India and the Central
Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank
Ltd. in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in the
Parliament on August 21, 1961. After it was passed by the Parliament, the Bill
got the assent of the President on December 07th 1961 and the Deposit Insurance
Act, 1961 came into force on January 1, 1962. The Deposit Insurance Scheme was
initially extended to functioning commercial banks only. This included the State
Bank of India and its subsidiaries, other commercial banks and the branches of
the foreign banks operating in India.
The Reserve Bank of India also promoted a public limited
company on January 14, 1971, named the Credit Guarantee Corporation of India
Ltd. (CGCI). The main thrust of the Credit Guarantee Schemes, introduced by the
Credit Guarantee Corporation of India Ltd., was aimed at encouraging the
commercial banks to cater to the credit needs of the hitherto neglected sectors,
particularly the weaker sections of the society engaged in non-industrial
activities, by providing guarantee cover to the loans and advances granted by
the credit institutions to small and needy borrowers covered under the priority
With a view to integrating the functions of deposit insurance and credit
guarantee, the above two organisations (DIC & CGCI) were merged and the present
Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence
on July 15, 1978. Consequently, the title of Deposit Insurance Act, 1961 was
changed to 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961'.
The objective of DICGC
The functions of the DICGC are governed by 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' framed by the Reserve Bank of India in exercise of the powers conferred by
sub-section (3) of Section 50 of the said Act.
Management of DICGC: The authorised capital of the Corporation is 50
crore, which is fully issued and subscribed by the Reserve Bank of India (RBI).
The management of the Corporation vests with its Board of Directors, of which a
Deputy Governor of the RBI is the Chairman. The Head Office of the Corporation
is in Mumbai. An Executive Director is in overall charge of its day-to-day
operations. It has four Departments, viz. Accounts, Deposit Insurance, Credit
Guarantee and Administration, under the supervision of other Senior Officers.
Banks covered by Deposit Insurance Scheme
(I) All commercial banks including the branches of foreign
banks functioning in India, Local Area Banks and Regional Rural Banks.
(II) Co-operative Banks - All eligible co-operative banks as defined in Section
2(gg) of the DICGC Act are covered by the Deposit Insurance Scheme. All State,
Central and Primary co-operative banks functioning in the States/Union
Territories which have amended their Co-operative Societies Act as required
under the DICGC Act, 1961, empowering RBI to order the Registrar of Co-operative
Societies of the respective States/Union Territories to wind up a co-operative
bank or to supersede its committee of management and requiring the Registrar not
to take any action for winding up, amalgamation or reconstruction of a
co-operative bank without prior sanction in writing from the RBI, are treated as
eligible banks. At present all Co-operative banks are covered by the Scheme. The
Union Territories of Lakshadweep and Dadra and Nagar Haveli do not have
Initially, under the provisions of Section 16(1) of the
DICGC Act, the insurance cover was limited to 1,500/- only per depositor(s) for
deposits held by him (them) in the "same right and in the same capacity" in all
the branches of the bank taken together. However, the Act also empowers the
Corporation to raise this limit with the prior approval of the Central
Government. Accordingly, the insurance limit was enhanced from time to time as
5,000/- with effect from 1st January 1968
10,000/- with effect from 1st April 1970
20,000/- with effect from 1st January 1976
30,000/- with effect from 1st July 1980
1,00,000/- with effect from 1st May 1993 onwards.
Types of Deposits Covered
DICGC insures all bank deposits, such as saving, fixed, current, and
recurring, etc. except the following types of deposits.
Deposits of foreign Governments;
Deposits of Central/State Governments;
Deposits of the State Land Development Banks with the State co-operative banks;
Any amount due on account of and deposit received outside India
Any amount which has been specifically exempted by the corporation with the
previous approval of the RBI.
Board of Directors
Chairman: Shri N.S.Vishwanathan (Deputy Governor, Reserve Bank of
Nominated by the Reserve Bank of India under Section 6(1)(a) of The
Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961.