FIS Term Paper on DICGC

8/7/2019 FIS Term Paper on DICGC

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OF

(Critically examine the role & existence of

D.I.C.G.C.)

SUBMITTED TO

Department of management Lovely Professional University

Phagwara

SUBMITTED BY:- GUIDED BY:

Name- Ahmad ali Mr.Anoop

Mohanty


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Roll No-RS1904A07

Regt.No-10905794

ACKNOWLEDGEMENTI take this opportunity to present my vote of thanks to all those

guidepost who really acted as lightening pillars to enlighten our

way throughout this project that has led to successful and

satisfactory completion of this study.

We are really grateful to our COD Mr.Devdhar shetty for

providing us with an opportunity to undertake this project in

this university and providing us with all the facilities. We are

highly thankful to Mr.Anoop Mohanty for his active support,

valuable time and advice, whole-hearted guidance, sincere

cooperation and pains-taking involvement during the study

and in completing the assignment of preparing the said

project within the time stipulated.

Lastly, We are thankful to all those, particularly the variousfriends , who have been instrumental in creating proper,

healthy and conductive environment and including new andfresh innovative ideas for us during the project, their help, it

would have been extremely difficult for us to prepare theproject in a time bound framework.


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Introduction: -The functions of the DICGC are governedby the provisions of The Deposit Insurance and CreditGuarantee Corporation Act, 1961 (DICGC Act) and TheDeposit Insurance and Credit Guarantee Corporation GeneralRegulations, 1961 framed by the Reserve Bank in exercise ofthe powers conferred by sub-section (3) of Section 50 of thesaid Act. As no credit institution is participating in any of the

credit guarantee schemes administered by the Corporation,presently it is not operating any of the schemes and depositinsurance remains the principal function of the Corporation. Theconcept of insuring deposits kept with banks received attentionfor the first time in the year 1948 after the banking crises inBengal. The question came up for reconsideration in the year1949, but it was decided to hold it in abeyance till the ReserveBank of India ensured adequate arrangements for inspection ofbanks. Subsequently, in the year 1950, the Rural Banking

Enquiry Committee also supported the concept. Seriousthought to the concept was, however, given by the ReserveBank of India and the Central Government after the crash of thePalai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. TheDeposit Insurance Corporation (DIC) Bill was introduced in theParliament on August 21, 1961. After it was passed by theParliament, the Bill got the assent of the President onDecember 7, 1961 and the Deposit Insurance Act, 1961 cameinto 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, othercommercial banks and the branches of the foreign banksoperating in India. Since 1968, with the enactment of theDeposit Insurance Corporation (Amendment) Act, 1968, theCorporation was required to register the 'eligible co-operativebanks' as insured banks under the provisions of Section 13 A ofthe Act. An eligible co-operative bank means a co-operativebank (whether it is a State co-operative bank, a Central co-operative bank or a Primary co-operative bank) in a State whichhas passed the enabling legislation amending its Co-operative


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Societies Act, requiring the State Government to vest power inthe Reserve Bank to order the Registrar of Co-operativeSocieties of a State to wind up a co-operative bank or tosupersede its Committee of Management and to require the

Registrar not to take any action for winding up, amalgamationor reconstruction of a co-operative bank without prior sanctionin writing from the Reserve Bank of India. Further, theGovernment of India, in consultation with the Reserve Bank ofIndia, introduced a Credit Guarantee Scheme in July 1960. TheReserve Bank of India was entrusted with the administration ofthe Scheme, as an agent of the Central Government, underSection 17 (11 A)(a) of the Reserve Bank of India Act, 1934 andwas designated as the Credit Guarantee Organization (CGO) for

guaranteeing the advances granted by banks and other CreditInstitutions to small scale industries. The Reserve Bank of Indiaoperated the scheme up to March 31, 1981. The Reserve Bankof 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 thecredit needs of the hitherto neglected sectors, particularly the

weaker sections of the society engaged in non-industrialactivities, by providing guarantee cover to the loans andadvances granted by the credit institutions to small and needyborrowers covered under the priority sector.

With a view to integrating the functions of deposit insuranceand credit guarantee, the above two organizations (DIC & CGCI)were merged and the present Deposit Insurance and CreditGuarantee Corporation (DICGC) came into existence on July 15,1978. Consequently, the title of Deposit Insurance Act, 1961was changed to 'The Deposit Insurance and Credit GuaranteeCorporation Act, 1961 '. Effective from April 1, 1981, theCorporation extended its guarantee support to credit granted tosmall scale industries also, after the cancellation of theGovernment of India's credit guarantee scheme. With effectfrom April 1, 1989, guarantee cover was extended to the entirepriority sector advances, as per the definition of the ReserveBank of India. However, effective from April 1, 1995, all housingloans have been excluded from the purview of guarantee cover

by the Corporation.


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Management:- The authorized capital of theCorporation is Rs.50 crore, which is fully issued and subscribed

by the Reserve Bank of India (RBI). The management of theCorporation vests with its Board of Directors, of which a DeputyGovernor of the RBI is the Chairman. As per the DICGC Act, theBoard shall consist of, besides the Chairman, (i) one Officer(normally in the rank of Executive Director) of the RBI, (ii) oneOfficer from the Central Government, (iii) five Directorsnominated by the Central Government in consultation with theRBI, three of whom are persons having special knowledge ofcommercial banking, insurance, commerce, industry or finance

and two of whom shall be persons having special knowledge of,or experience in co-operative banking or co-operativemovement and none of the directors should be an employee ofthe Central Government, or the RBI or the Corporation or adirector or an employee of a banking company or a co-operative bank, or otherwise actively connected with a bankingcompany or a co-operative bank, and (iv) four Directors,nominated by the Central Government in consultation with theRBI, having special knowledge or practical experience in

respect of accountancy, agriculture and rural economy,banking, co-operation, economics, finance, law or small scaleindustry or any other matter which may be considered to beuseful to the Corporation. The Head Office of the Corporation isat Mumbai. An Chief Executive Officer is in overall charge of itsday-to-day operations. It has four Departments, viz. Accounts,Deposit Insurance, Credit Guarantee and Administration, underthe supervision of other Senior Officers. The Corporation hadfour branches, situated at Kolkata, Chennai, Nagpur and New

Delhi. Out of these, the branches situated at Kolkata, Chennaiand Nagpur were closed with effect from November 30, 2000,since almost all the banks have opted out of the CreditGuarantee Schemes, and most of the pending claims havebeen settled. While major items of work of these threebranches were taken over by the Head Office of theCorporation, some residual items of work are vested with theDICGC Cells specially created in the Rural Planning & CreditDepartment of the Reserve Bank of India at the respective

centres.


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Board Of Directors

Chairman

Nominated by the Reserve Bank of India under Section 6(1)(a)of The Deposit Insurance and Credit Guarantee Corporation Act,1961.

Dr. Subir V Gokarn

Deputy Governor, Reserve Bank of India, Mumbai.

Directors

Nominated by the Reserve Bank of India under Section 6(1)(b)of the Deposit Insurance and Credit Guarantee Corporation Act,1

Shri Anand Sinha

Executive Director, Reserve Bank of India, Mumbai

Nominated by the Central Government under Section 6(1)(c) ofthe Deposit Insurance and Credit Guarantee Corporation Act,1961.

Dr. Shashank SaksenaDirector, Ministry of Finance, Department of Financial Services,Government of India, New Delhi.

Nominated by the Central Government under Section 6(1)(d) ofthe Deposit Insurance and Credit Guarantee Corporation Act,1961.

Shri Umesh Chandra SarangiChairman, National Bank for Agricultural and RuralDevelopment
http://www.dicgc.org.in/English/pdf/DICGC-CorporateGoverance.pdf


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Shri M. RamadossChairman-cum-Managing Director, The New India Assurance Co.Ltd

.Nominated by the Central Government under Section 6(1)(e) ofThe Deposit Insurance and Credit Guarantee Corporation Act,1961.

Principal Officers of the Corporation

H. N. Prasad,Chief ExecutiveOfficer

B. Srinivas,Chief GeneralManager

M.K. Samantaray,General Manager

R. K. Acharya,

Deputy GeneralManager

J.K.Dash,Deputy GeneralManager

Rajesh Kumar,Deputy GeneralManager

(Mrs.) KumudiniHajra,Director

BankersReserve Bank of India, Mumbai

AuditorsM/s. K.S Aiyer & CoChartered Accountants, Mumbai

Role and Function of the DepositInsurance SystemDeposit Insurance plays a key role in maintenance of financialstability by sustaining public confidence in the banking systemin India through protection of depositors, especially small and

less sophisticated depositors, against loss of deposit to asignificant extent. The deposit insurance system in India is


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subject to the Provisions of Deposit Insurance Act (enacted in1961). Deposit Insurance and Credit Guarantee Corporation(DICGC), which was established withfunding from the Reserve Bank of India is the body that

operates the deposit insurance system.

(1) Insured Banks(I) All commercial banks including the branches of foreignbanks functioning in India, local area banks and regional ruralbanks are covered under the Deposit Insurance Scheme.

(II) All eligible co-operative banks as defined in Section 2(gg) ofthe DICGC Act are covered by the Deposit Insurance Scheme.

All State, Central and Primary co-operative banks functioning inthe States/Union Territories which have amended their Co-operative Societies Act, as required under the DICGC Act, 1961,empowering Reserve Bank to order the Registrar of Co-operative Societies of the respective States/Union Territories towind up a co-operative bank or to supersede its committee ofmanagement and requiring the Registrar not to take any actionfor winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the

Reserve Bank, are treated as eligible banks. At present all co-operative banks, other than those in the States of Meghalaya,Mizoram, Nagaland and the Union Territories of Chandigarh,Lakshadweep and Dadra & NagarHaveli are covered by the Scheme. The co-operative banks inthe three new states of Chhattisgarh, Uttaranchal andJharkhand which were insured on the date of creation of thesestates continue to remain covered under the Scheme.

(2) Registration of new banks asinsured banks(i) In terms of Section 11 of the DICGC Act, 1961, all newcommercial banks are required to be registered with theCorporation soon after they are granted licence by the ReserveBank under Section 22 of the Banking Regulation Act, 1949.Following the enactment of the Regional Rural Banks Act, 1976all regional rural banks are required to be registered with the

Corporation


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within 30 days from the date of their establishment, in terms ofSection 11A of the DICGC Act,1961.

(ii) A new co-operative bank is required to be registered with

the Corporation soon after it is granted a licence by theReserve Bank.

(iii) When the owned funds of a primary co-operative creditsociety reach the level of Rs. 1 lakh, it has to apply to theReserve Bank for a licence to carry on banking business as aprimary cooperative bank and is to be registered with theCorporation within 3 months from the date of its application forlicence.

(iv) A co-operative bank which has come into existence afterthe commencement of the Deposit Insurance Corporation(Amendment) Act, 1968, as a result of the division of any otherco-operative society carrying on business as a co-operativebank, or the amalgamation of two or more cooperativesocieties carrying on banking business at the commencementof the Banking Laws(Application to Co-operative Societies) Act,1965 or at any time thereafter is to be registered within three

months of its making an application for licence. However, a co-operative bank will not be registered, if it has been informed bythe Reserve Bank, in writing, that a licence cannot begranted to it.

(3)Outline of the SystemIn terms of Section 14 of the DICGC Act, after the Corporationregisters a bank as an insured bank, it is required to send,within 30 days of such registration, intimation in writing to the

bank to that effect. The letter of intimation, apart from theadvice of registration and registration number, gives detailsabout the requirements to be complied with by the bank, therate of premium payable to the Corporation, the manner inwhich the premium is to be paid, the returns to be furnished tothe Corporation, etc.

(4) Scope of Insured Deposits, etc.DICGC insures all bank deposits, such as saving, fixed, current,

etc. except the following types of deposits:


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(i) Deposits of foreign Governments;(ii) Deposits of Central/State Governments;(iii) Inter-bank deposits;

(iv) Deposits of the State Land Development Banks with theState co-operative banks;(v) Any amount due on account of deposits received outsideIndia;(vi) Any amount which has been specifically exempted by the

Corporation with the previous approval of the Reserve Bank.

(5) Amount of Cover (Protection)

The Corporation insures all bank deposits, such as savings,fixed, current, recurring, etc. except the deposits of (i) foreigngovernments; (ii) Central/ State Governments; (iii)State LandDevelopment Banks with the State co-operative banks; as also(iv) inter-bank deposits (v) deposits received outside India and(vi) deposit specifically exempted by the Corporation with theprevious approval of then Reserve Bank. Under the Scheme, inthe event of liquidation, reconstruction or amalgamation of aninsured bank, every depositor of that bank is entitled torepayment of the deposits held by him in the same right andsame capacity in all branches of that bank upto an aggregatemonetary ceiling of Rs.1,00,000/- (Rupees one lakh).

(6) Deposit Protection SchemeThere are two methods of protecting depositors interest whenan insured bank fails: (i) by transferring business of the failed

bank to another sound bank (merger or amalgamation)(ii) where the DICGC pays insurance proceeds to depositors

(insurance pay-out method).

(7) Insurance Coverage


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Under the provisions of Section 16(1) of the DICGC Act, theinsurance cover was originally limited to Rs.1,500/- only perdepositor for deposits held by him in the same capacity and in

the same right at all the branches of a bank taken together.However, the Act also empowers the Corporation to raise thislimit with the prior approval of the Central Government.Accordingly, the insurance limit was enhanced from time totime as follows:

Effective from Date Insurance LimitMay 1, 1993 Rs. 1,00,000/-July 1, 1980 Rs. 30,000/-

January 1, 1976 Rs. 20,000/-April 1, 1970 Rs. 10,000/-January 1, 1968 Rs. 5,000/-

(8)Insurance PremiumThe Corporation collects insurance premium from insured

banks for administration of the deposit insurance system. Thepremium to be paid by theinsured banks are computed on the basis of their assessabledeposits. Insured banks pay advance insurance premium to theCorporation semi-annually, within two months from thebeginning of each financial half year based on its deposits as atthe end of previous half year. The premium paid by the insuredbanks to the Corporation is required to be borne by the banksthemselves and is not passed on to the depositors. For delay in

payment of premium, an insured bank is liable to pay interestat the rate of 8 per cent above the Bank Rate on the defaultamount from the beginning of the relevant half-year till thedate of payment.

Premium Rates per deposits of Rs.100Date from Premium (in Rs.)1-04-2005 0.101-04-2004 0.08

1-07-1993 0.051-10-1971 0.04


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1-1-1962 0.05

The consideration for extension of insurance cover to banks is

payment of an insurance premium. The premium is collected athalf yearly intervals at the rate of 10 paise per annum perhundred rupees assessable deposit with effect from the year2005-06. The premium paid by the insured banks to theCorporation is required to be absorbed by the banksthemselves so that the benefit of deposit insurance protectionis made available to the depositors freeof cost.

(9) Interest Charged due to Default inPayment of PremiumAn insured bank is required to remit premium not later than thelast day of May and November each year. If it does not pay onor before the stipulated date the premium payable by it inwhole or any portion thereof, it is liable to pay interest at therate of 8% above the Bank Rate on the amount of suchpremium in default from the beginning of the half-year till thedate of payment.

(10) Cancellation of RegistrationUnder Section 15A of the DICGC Act, the Corporation has thepower to cancel the registration of an insured bank if it fails topay the premium for three consecutive half-year periods.However, the Corporation may restore the registration of thebank, which has been de-registered for non-payment ofpremium, if the concerned bank makes a request in this behalf

and pays all the amounts due by way of premium together withinterest. Registration of an insured bank stands cancelled if thebank is prohibited from accepting freshdeposits; or its licence is cancelled or a licence is refused to itby the Reserve Bank; or it is wound up either voluntarily orcompulsorily; or it ceases to be a banking company or a co-operative bank within the meaning of Section 36A(2) of theBanking Regulation Act, 1949; or it has transferred all itsdeposit liabilities to any other institution; or it is amalgamated

with any other bank or a scheme of compromise or


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arrangement or of reconstruction has been sanctioned by acompetent authority and the said scheme does not permitacceptance of fresh deposits. In the case of a co-operativebank, its registration also gets cancelled if it ceases to be an

eligible co-operative bank. In the event of the cancellation ofregistration of a bank, deposits of the bank as on the date ofcancellation remain covered under the insurance scheme.

(11) Settlement of claims(i) In the event of the winding up or liquidation of an insuredbank, every depositor of the bank is entitled to payment of anamount equal to the deposits held by him in the same right and

in the same capacity at all the branches of that bank puttogether, standing as on the date of cancellationof registration (i.e. the date of cancellation of licence or orderfor winding up or liquidation) subject to set-off of his dues tothe bank, if any [Section 16(1) and (3) of the DICGC Act].However, the payment to each depositor is subject to the limitof the insurance cover fixed from time to time.

(ii) When a scheme of compromise or arrangement or re-construction or amalgamation is sanctioned for a bank by acompetent authority, and the scheme does not entitle thedepositors to get credit for the full amount of the deposits onthe date on which the scheme comes into force, theCorporationpays the difference between the full amount of deposit or thelimit of insurance cover in force at the time, whichever is less,and the amount actually received by the depositors under thescheme. In these cases also the amount payable to a depositoris determined in respect of all his deposits held in the sameright and in the same capacity at all the branches of that bankput together subject to the set-off of his dues to the bank, ifany, [Section 16(2) and (3) of the DICGC Act].

(iii) Under the provisions of Section 17(1) of the DICGC Act, theliquidator of an insured bank which has been wound up ortaken into liquidation, has to submit to the Corporation a listshowing separately the amount of the deposit in respect ofeach depositor and the amount set off, in such a manner as


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may be specified by the Corporation and certified to be correctby the liquidator, within three months.

(iv) In the case of a bank in respect of which a scheme of

amalgamation / reconstruction, etc has been sanctioned, asimilar list has to be submitted by the Chief Executive Officer ofthe concerned transferee bank or insured bank as the case maybe, within three months from the date on which the scheme ofamalgamation/reconstruction, etc. comes into effect [Section18(1) of the DICGC Act].(v) The Corporation is required to pay the amount payableunder the provisions of the Act in respect of the deposits ofeach depositor within two months from the date of receipt of

such lists.

(vi) The claim lists are to be prepared in accordance with theguidelines issued by the Corporation and got verified by theChartered Accountants appointed for the purpose.

(vii) The Corporation generally makes payment of the eligibleamount to the liquidator/Chief Executive Officer of thetransferee / insured bank, for disbursement to the depositors.

However, the amounts payable to the untraceable depositorsare held back till the liquidator/Chief Executive Officer is in aposition to furnish all the requisite particulars.

(12) Recovery from Settled ClaimsIn terms of Section 21(2) of the DICGC Act read with Regulation22 of the DICGC General Regulations, the liquidator or theinsured bank or the transferee bank as the case may be, isrequired to repay to the Corporation out of the amounts

realised from the assets of the failed bank and other amountsin hand after making provision for the expenses incurred, assoon as such amounts are sufficient to enable him to declare adividend of not less than one paisa in the Rupee to eachdepositor.

(13)Funds, Accounts and TaxationThe Corporation maintains three distinct Funds viz. (i) DepositInsurance Fund (DIF); (ii) Credit Guarantee Fund (CGF) and (iii)

General Fund (GF). The first two Funds are created byaccumulating the insurance premium and guarantee fees,


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respectively and are applied for settlement of the respectiveclaims. The authorised capital of the Corporation is Rs.50 crorewhich is entirely subscribed to by the Reserve Bank. TheGeneral Fund is utilised for meeting the establishment and

administrative expenses of the Corporation. The surplusbalances in all the three Funds are invested in CentralGovernment securities. Inter-Fund transfer is permissible underthe Act. The books of accounts of the Corporation are closed ason March 31 every year. The affairs of the Corporation areaudited by an Auditor appointed by its Board of Directors withthe previous approval of Reserve Bank. The audited accountstogether with Auditors report and a report on the working ofthe Corporation are required to be submitted to Reserve Bank

within three months from the date on which its accounts arebalanced and closed. Copies of these documents are alsosubmitted to the Central Government, which are laid beforeeach House of the Parliament. The Corporation followsmercantile system of accounting and it adopted the system ofactuarial valuations of its liabilities from the year 1987onwards. The Corporation has been paying income tax sincethe financial year 1987-88 and fringe benefit tax since 2005-06.The Corporation is assessed to Income Tax as a company as

defined under the Income Tax Act, 1961.

What does DICGC insure?

DICGC insures all deposits such as savings, fixed, current,recurring, etc. deposits except the following types of deposits

(i) Deposits of foreign Governments

(ii) Deposits of State / Central Governments

(iii) Inter-bank deposits

(iv) Certificates of deposit


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(v) Deposits of the stat land development banks with thestat cooperative banks

(vi) Deposits taken as cash collaterals

(vii) Deposits which are created by transferring subordinatedliabilities, at least 6 months prior to a bank failure ormoratorium, whichever is earlier and

(viii) Deposits held abroad.

What is the maximum deposit amount insured byDICGC?

Each depositor in a bank is insured up to a maximum ofRs.1,00,000 (Rupees One Lakh ) for both principal and

interest amount held by him in the same right and capacityas on the date of liquidation/cancellation of banks licence.

How will you know whether your bank is insured byDICGC or not?

DICGC while registering the banks as insured banks advisesthem to display prominently at their branches that thedepositors money up to Rupees on lakh is insured by DICGC.

Besides, the banks are also required to indicate in theaccount opening forms the extent of insurance coveravailable to the depositor. In case of doubt, depositor shouldmake specific enquiry from the branch official in this regard.

What is the ceiling on amount of insured deposits keptby one person in different branches of a bank?

The deposits kept in different branches of a bank areaggregated for the purpose of insurance cover and amaximum amount up to Rupees on lakh is paid.

Does DICGC insure just the principal on an account orboth principal and accrued interest?


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DICGC insures principal and interest up to a maximumamount of Rs. One lakh. For example, if an individual had anaccount with a principal amount of Rs.95000 plus accruedinterest of Rs.4000 the total amount insured by the DICGC

would be Rs.99000. If, however, the principal amount in thataccount was Rs. One lakh, the accrued interest would not beinsured, not because it was interest but because that was theamount over the insurance limit.

Can deposit insurance be increased bydepositing funds into several differentaccounts all at the same bank?

No. All funds held in the same type of ownership at the samebank are added together before deposit insurance isdetermined. If the funds are in different types of ownership,or are deposited into separate banks they would beseparately insured.

When is DICGC liable to pay?

If a bank goes into liquidation.DICGC is liable to pay to each

depositor through the liquidator, the amount of his deposit upto Rupees One Lakh within two months from the date ofreceipt of claim list from the liquidator. If a bank isreconstructed or amalgamated/merged with another bank.DICGC pays the bank concerned, the difference between theamount due to depositor under the insurance scheme and theamount received by him under thereconstruction/amalgamation scheme within two monthsfrom the date of receipt of claim list from the transferee

bank/Chief Executive Officer of the insured bank as the casemay be.

Does the DICGC directly deal with the depositors offailed banks?


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No. In the event of a banks liquidation, the liquidatorprepares depositor wise claim list and sends it to the DICGCfor the scrutiny and payment. DICGC pays the money toliquidator who is liable to pay to the depositors. In the case of

amalgamation/merger of banks, the amount due to eachdepositor is paid to the transferee bank.

Can DICGC withdraw deposit insurance coverage fromany bank?

Deposit Insurance coverage of a bank may be withdrawn if ithas been prohibited from receiving fresh deposits; or itslicense has been cancelled by the Reserve Bank; or it hasbeen ordered to be would up; or it has transferred all deposit

liabilities in India to any other institution; or it ceases to be abanking company/eligible co-operative bank; or a liquidatorhas been appointed in pursuance of a resolution for voluntarywinding up of its affairs; or a scheme of compromise orarrangement or reconstruction has been sanctioned by anycompetent authority and the said scheme does not permitacceptance of fresh deposit; or it has been amalgamated withany other bank/co-operative society. The Corporation maycancel the registration of an insured bank if it fails to pay the

premium for three consecutive periods. In the event of DICGCwithdrawing its coverage from any bank for default in thepayment of premium the public will be notified throughnewspapers. The depositors will continue to have the benefitof Deposits Insurance on the amount of deposit held by themas on the date of withdrawal of coverage.


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Deposit Insurance - Creating Awareness

and building up Public ConfidenceDeposit insurance is also one of the policy tools used bygovernments and central banks to build public confidence. Ahigh level of confidence in the deposit insurance system canhelp mitigate bank runs. But this requires a vigorous campaignto spread public awareness about deposit insurance. A goodpublic awareness program educates the public about thebenefits and limitations of the deposit insurance system,focusing on its target audience. For depositors whose deposits

exceed the limit of deposit insurance, public awareness canencourage them to mitigate their exposure by keeping theirdeposits with banks whose financial health is unquestionable,thereby promoting competitiveness and market discipline.Deposit insurers employ a wide variety of tools and channels ofcommunication, wherever possible, to ensure that themessages are conveyed to the target audience. An appropriatemix of tools should be used to reach the maximum number ofpeople within the target audience cutting across different

backgrounds and levels of society. Factors that must be takeninto consideration in determining an effective mix of tools arethe levels of literacy, size of population, demographiccharacteristics of the specific target audiences, as well asbudgetary constraints. Some deposit insurers circulate depositinsurance information through publications, such as annualreports, brochures, guideline handbooks and answers toFrequently Asked Questions, distributed through the branchesof member institutions, seminars and workshops, or provided to

the public on request. Given the increasing reach andaccessibility of the Internet, a website to directly communicatewith the public is an important tool for an effective publicawareness campaign. Deposit insurance signs or logos arecommon tools used by deposit insurers to enhance publicawareness. The deposit insurance logo and sign symbolize aseal of trust that may be placed in printed and electronicmedia and bank premises to assure the public that they havethe protection of the deposit insurance system . Some depositinsurers have also established call centers to enhancecommunication and provide multilingual services facilitating


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public access to deposit insurers and deposit insuranceinformation . In the event of a member institutions failure,depositors need to be informed about reimbursementprocedures, and information related to how and when they can

receive their deposits. In India, as part of public awarenessprogram the Corporation disseminates information aboutdeposit insurance scheme to the public through insured banks,its own website, booklet on guidelines on deposit insurance etc.The Corporations web-site furnishes detailed information ondeposit insurancesystem in India, answers to Frequently AskedQuestions (FAQs), manner of settlement of claims, list ofinsured banks, details of claims settled, circulars issued toinsured banks etc. For the convenience of insured banks, the

Corporation has posted forms of periodic returns required to besubmitted by them and is also in the process of uploading aPremium calculator on its website. DICGC has forwarded abooklet on FAQs on deposit insurance together with a copy ofthe poster containing basic information on deposit insurance toall banks, to be printed according to their requirement in thelanguage generally read and understood by their accountholders. The booklet on deposit insurance is to be madeavailable to the depositors and the poster is to be displayed

prominently in the premises of every branch. The Corporationdisseminates policy changes/ information / data throughcirculars to all insured banks, press release in newspaper/ RBIweb site, annual report of the Corporation, DICGCs web-site,etc. For the convenience of the depositors, the Corporationreleases information/ data on claims settled with name of thebank along with the amount on the DICGC web-site.

RECENT POLICY INITIATIVES

(i) Expeditious Settlement of ClaimsThe basic objective of deposit insurance is to ensure promptreimbursement to the depositors, particularly small depositors,to the extent permitted under the law, for the losses suffered inthe event of an insured banks closure, so as to minimise theloss of public confidence and restrict a run on other banks. Asper the DICGC Act, the Corporation is required to settle theclaim of depositors within two months from the date of receipt

of the claim list from the liquidator. The liquidator is required to


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submit the claim list of depositors within 3 months of takingcharge as liquidator. However, it is observed that liquidatorsgenerally fail to submit the claim within the statutory timeframe of 3 months, with the result that depositors claims are

not settled within the statutorily prescribed time limit. Paymentby DICGC to depositors towards their insured deposits andrecovery of dues from the failed banks is routed throughliquidators of banks. In case of banking companies, theliquidators areappointed by the High Court on the application of RBI under theprovisions of the Banking Regulation Act, 1949. In case of co-operative banks, the Registrar of Co-operative Societies directlyappoints the liquidators. However, experience shows that in

several cases there is considerable delay in appointment ofliquidators as also in submission of claims to the DICGC by theliquidators, particularly those of co-operative banks, resulting indelay in payment and inconvenience to the depositors. Of late,the Corporation has taken certain initiatives to eliminate delayin settlement of claims of the depositors. The Corporation hasformulated policy guidelines to mitigate hardship to thedepositors of insured banks due to delay on account ofliquidation order having been challenged in court of law.

Further, in extraordinary situations where the DICGC does notreceive the claim list from liquidators even after considerabledelay and prolonged correspondence, it issues anadvertisement in local newspapers informing the depositorsabout the non-receipt of claims at its end and requesting themto make a claim with the liquidators under intimation to DICGC.Before issuing such advertisement, however, DICGC gives onemonths time to the concerned Registrar of Co-operativeSocieties for arranging submission of claims list by theliquidator. However, it has been observed that though this hasyielded the desired results in some cases, in many other casesthe response has been poor. An onsite pilot study wasconducted by the Corporation in respect of four such banks inone of the States. Findings of the study reveal the following:

(i) The main reason for non-submission of claim list is pendencyof audit of the books of accounts of the banks as on the cut offdate and that for the earlier periods. Inadequate and impropermaintenance of records, unauthenticated entries in the books


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of the banks etc. are causing delay in the audit by theGovernment Auditors.

(ii) Some of the liquidators were having liquid funds, sufficient

to make payment to depositors, in accordance with theprovisions of the DICGC Act, 1961, but they had utilized thefunds for payment of deposits which were not eligible forsettlement of claims, e.g. deposits of the banks / Governmentand those exceeding Rs.1.00 lakh.

(iii) The liquidators also resorted to adjustment of depositsagainst the loan amounts of third parties.

On the basis of observations made in the study report it

has been decided that if a bank under liquidation is havingliquid funds which are adequate to make payment todepositors, the liquidator may approach Deposit Insurance &Credit Guarantee Corporation for its in-principle approval to paythe small depositors upto Rs.1 lakh as per the provisions ofDICGC Act 1961. The Corporation will consider such requestsfor payment to depositors subject to the condition that theliquidator would not submit any claim to the Corporation, or ifthe payment is made in part to eligible depositors, submit the

claim for net amount after adjustment of such payment.

(ii) Liberalised Interpretation in case ofJoint HoldingFurther, the Corporation had revised the policy on joint depositaccounts such that joint deposits held in the names of A & Band B & A have been treated as two separate accounts, eligiblefor maximum claim of Rs.1 lakh each. In response to this policychange additional claims in respect of 9 banks amounting to Rs.216 lakh were settled. Though the above steps have broughtabout some relief to the depositors of failed banks, thecorporation is concerned about the delay in receipt of claim listfrom liquidators of Co-operative Banks, which continues evennow.


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ConclusionIn short, it can be said that all commercial banks, including

branches of foreign banks functioning in India, local area

banks and regional rural banks are insured by DICGC. All

State, Central and primary cooperative banks, also called

urban cooperative banks, functioning in States which have

amended the local Co-operative Societies Act empoweringthe Reserve Bank to order the Registrar of Cooperative

Societies of the State to liquidate, amalgamate or reconstruct

a cooperative bank and to supersede its committee of

management, are insured by DICGC. Each depositor in a bank

is insured up to a maximum of Rs.1,00,000 (Rupees One

Lakh ) for both principal and interest amount held by him in

the same right and capacity as on the date of

liquidation/cancellation of banks licence. If a bank goes into


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liquidation. DICGC is liable to pay to each depositor through

the liquidator, the amount of his deposit up to Rupees One

Lakh within two months from the date of receipt of claim list

from the liquidator.

REFERENCES


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www.dicgc.org.in

www.rupeebank.com/inscov.htm

www.rbi.org.in

www.bimaonline.com

www.google.com

www.wikipedia.org

www.feeleminds.com

www.indiastudychannel.com

www.rishabhdara.com

www.fiuindia.gov.in
http://www.dicgc.org.in/http://www.dicgc.org.in/http://www.dicgc.org.in/http://www.dicgc.org.in/http://www.rupeebank.com/inscov.htmhttp://www.rbi.org.in/http://www.bimaonline.com/http://www.google.com/http://www.wikipedia.org/http://www.feeleminds.com/http://www.indiastudychannel.com/http://www.rishabhdara.com/http://www.fiuindia.gov.in/http://www.dicgc.org.in/http://www.rupeebank.com/inscov.htmhttp://www.rbi.org.in/http://www.bimaonline.com/http://www.google.com/http://www.wikipedia.org/http://www.feeleminds.com/http://www.indiastudychannel.com/http://www.rishabhdara.com/http://www.fiuindia.gov.in/

FIS Term Paper on DICGC

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