Context: The Union Cabinet recently cleared amendments to the Deposit Insurance Credit Guarantee Corporation (DICGC) Act, 1961.

• The amendments bring relief to depositors in stressed banks or financial institutions that have been placed under a moratorium.

Background

• Earlier, the biggest issue faced by depositors in stressed banks was the lack of access to their own funds over long periods due to restrictions imposed by the central bank.
• However, the amendment to the DICGC Act has addressed these issues.

Amendments to the DICGC Act, 1961

• Depositors in stressed banks that have faced regulatory action must receive insurance on their bank deposits to the tune of Rs 5 lakh within 90 days.

Normally, it takes about 8-10 years, after complete liquidation of the bank.

• The new rule will be applicable to all commercial banks and branches of foreign banks operating in India.

This rule will be applicable to stressed banks that have been placed under a moratorium by the Reserve Bank of India.

• Once a bank is in trouble, it will have to collect all the account details and balances and share it with the Deposit Insurance Credit Guarantee Corporation (DICGC) within 45 days.

The Corporation will get another 45 days to check these details and process the claims.

• Finance Minister earlier announced an increase in insurance cover on bank deposits to Rs 5 from Rs 1 lakh, in case a bank faces licence cancellation and liquidation.
• It will cover 98.3% of all deposit accounts and 50.9% of all deposits’ value.
• Only 80% of deposits are insured with 20%-30% of deposit value globally.

Additional Information

Deposit Insurance Credit Guarantee Corporation

• The DICGC is a subsidiary of the Reserve Bank of India (RBI) and provides insurance cover on bank deposits.
• The act covers all public, private, cooperative and foreign banks in India, barring some specific deposits.
• The Corporation maintains the following funds namely:- Deposit Insurance Fund; Credit  Guarantee Fund and General Fund

Deposit Insurance: It is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.
Credit Guarantee: It is the guarantee that often provides for a specific remedy to the creditor if his debtor does not return his debt.