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Introductory Notes on 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 7, 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.

Since 1968, with the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was required to register the ‘eligible co-operative banks’ as insured banks under the provisions of Section 13 A of the Act. An eligible co-operative bank means a co-operative bank (whether it is a State co-operative bank, a Central co-operative bank or a Primary co-operative bank) in a State which has passed the enabling legislation amending its Co-operative Societies Act, requiring the State Government to vest power in the Reserve Bank to order the Registrar of Co-operative Societies of a State to wind up a co-operative bank or to supersede its Committee of Management and to require 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 Reserve Bank of India.

Further, the Government of India, in consultation with the Reserve Bank of India, introduced a Credit Guarantee Scheme in July 1960. The Reserve Bank of India was entrusted with the administration of the Scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organization (CGO) for guaranteeing the advances granted by banks and other Credit Institutions to small scale industries. The Reserve Bank of India operated the scheme up to March 31, 1981.

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 sector.

With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (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 ‘.

Effective from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India’s credit guarantee scheme. With effect from April 1, 1989, guarantee cover was extended to the entire priority sector advances, as per the definition of the Reserve Bank of India. However, effective from April 1, 1995, all housing loans have been excluded from the purview of guarantee cover by the Corporation.

Profile of DICGC

Legal Framework/Objective

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.

The preamble of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 states that it is an Act to provide for the establishment of a Corporation for the purpose of insurance of deposits and guaranteeing of credit facilities and for other matters connected therewith or incidental thereto.

Organization and Functions

Management

The authorized 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. As per the DICGC Act, the Board shall consist of, besides the Chairman, (i) one Officer (normally in the rank of Executive Director) of the RBI, (ii) one Officer from the Central Government, (iii) five Directors nominated by the Central Government in consultation with the RBI, three of whom are persons having special knowledge of commercial 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-operative movement and none of the directors should be an employee of the Central Government, or the RBI or the Corporation or a director or an employee of a banking company or a co-operative bank, or otherwise actively connected with a banking company or a co-operative bank, and (iv) four Directors, nominated by the Central Government in consultation with the RBI, having special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law or small scale industry or any other matter which may be considered to be useful to the Corporation.

The Head Office of the Corporation is at 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. The Corporation had four branches, situated at Kolkata, Chennai, Nagpur and New Delhi. Out of these, the branches situated at Kolkata, Chennai and Nagpur were closed with effect from November 30, 2000, since almost all the banks have opted out of the Credit Guarantee Schemes, and most of the pending claims have been settled. While major items of work of these three branches were taken over by the Head Office of the Corporation, some residual items of work are vested with the DICGC Cells specially created in the Rural Planning & Credit Department of the Reserve Bank of India at the respective centres.

Deposit Insurance

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 Co-operative Banks.

Registration of new banks as insured banksz

Under Section 11 of the DICGC Act, 1961, all new commercial banks are required to be registered as soon as may be after they are granted licence by the Reserve Bank of India under Section 22 of the Banking Regulation Act, 1949.

Following the enactment of the Regional Rural Banks Act, 1976 all Regional Rural Banks are required to be registered within 30 days from the date of their establishment in terms of Section 11A of the DICGC Act, 1961.

Co-operative Banks – A new co-operative bank is required to be registered as soon as may be after it is granted a licence by the RBI.

A primary co-operative credit society becoming a primary co-operative bank is to be registered within 3 months from the date of its application for licence.

A co-operative bank which has come into existence after the commencement of the Deposit Insurance Corporation (Amendment) Act, 1968, as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business at the commencement of 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 by the RBI in writing that a licence cannot be granted to it.

In terms of Section 14 of the DICGC Act, after the Corporation registers a bank as an insured bank, it is required to send, within 30 days of the bank’s registration, an intimation in writing to the bank that it has been registered as an insured bank.

The letter of intimation, apart from the advice of registration and registration number, gives the details about the requirements to be observed by the bank, the rate of premium payable to the Corporation, the manner in which the premium is to be paid by the bank and the returns to be furnished to the Corporation etc. The insured bank has to submit its first return and remit the amount of premium within one month from the receipt of the letter, which is dispatched by Registered post or the date of commencement of business whichever is later. A copy of this letter is endorsed to the Reserve Bank of India and also National Bank For Agriculture and Rural Development (NABARD) in the case of Regional Rural Banks/State co-operative banks and District Central co-operative banks.

Insurance coverage

IInitially, 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 follows:

• 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, recurring, etc. except the following types of deposits.

• Deposits of foreign Governments;
• Deposits of Central/State Governments;
• Inter-bank deposits;
• 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.

Insurance Premium

The rate of insurance premium was initially fixed at .0.05 or 1/20th of 1 per cent per annum. It was reduced to .0.04 or 1/25th of 1 per cent per annum with effect from 1st October 1971. However, it was again raised to .0.05 or 1/20th of 1 per cent per annum with effect from 1st July 1993.Since 2001,the Corporation has had to settle claims for large amounts due to the failure of banks, particularly in the Co-operative Sector causing a drain on the Deposit Insurance Fund (DIF). While there is sufficient corpus in Deposit Insurance Fund for the present, it is necessary to build up a sound DIF in the long term to protect the interests of the banking system. With this objective the Corporation decided to enhance the deposit insurance premium from 5 paise per 100 of assessable deposits per annum to 10 paise per 100 of assessable deposits per annum in a phased manner over a period of two years. In the first phase, the premium was raised to 8 paise per 100 of assessable deposits from the financial year 2004-05 and later to 10 paise per 100 assessable deposits from the fiancial year 2005-06. The Corporation will continuously review the DIF and will consider revising the premium further from time to time with the objective of maintaining a strong DIF.For further details refer the section – What’s New

The premium paid by the insured banks to the Corporation is required to be absorbed by the banks themselves so that the benefit of deposit insurance protection is made available to the depositors free of cost. In other words the financial burden on account of payment of premium should be borne by the banks themselves and should not be passed on to the depositors. The formula for working out the half-yearly premium is as follows: –

Deposits in rupees rounded to thousands X 0.05 / 100

The deposits should be rounded off to the nearest thousand Rupees

Interest

An insured bank is required to remit premium not later than the last day of May and November each year. If it does not pay on or before the stipulated date the premium payable by it or any portion thereof, it is liable to pay interest at the rate of 8% above the Bank Rate on the amount of such premium or on the unpaid portion thereof, as the case may be, from the beginning of the half-year till the date of payment. Interest is calculated on this basis for the actual number of days of default, taking 1 year as 365 days.

Any amount payable to the Corporation by way of premium or interest on the overdue amount of premium can be paid in the following manner:

• (i) Directly for credit of Deposit Insurance Fund A/C of the Corporation maintained with RBI, Deposit Accounts Department, Mumbai.
• (ii) Remittance by crossed cheque, demand draft or T.T. drawn and payable at Mumbai, in favour of the Corporation.

Cancellation of Registration

Under Section 15A of the DICGC Act, the Corporation has the power to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. However, the Corporation may restore the registration of the bank, which has been de-registered for non-payment of premium, if the concerned bank makes a request in this behalf and pays all the amounts due by way of premium from the date of default together with interest.
Registration of an insured bank stands cancelled if the bank is prohibited from receiving fresh deposits; or its licence is cancelled or a licence is refused to it by the RBI; or it is wound up either voluntarily or compulsorily; or it ceases to be a banking company or a co-operative bank within the meaning of Section 36A(2) of the Banking Regulation Act, 1949; or it has transferred all its deposit liabilities to any other institution; or it is amalgamated with any other bank or a scheme of compromise or arrangement or of reconstruction has been sanctioned by a competent authority and the said scheme does not permit acceptance of fresh deposits. In the case of a co-operative bank, its registration also gets cancelled if it ceases to be an eligible co-operative bank.
In the event of the cancellation of registration of a bank, deposits of the bank remain covered by the insurance till the date of the cancellation.

Returns

Every insured bank is required to furnish to the Corporation as soon as possible, after the commencement of each calendar half-year, but not in any event later than the last day of the first month of the half-year, a statement (Form DI Return) in duplicate, showing the basis on which the premium payable by that bank has been calculated and the amount of premium payable by that bank for that half-year. The statement should be certified as correct by two officials authorised by the bank for this purpose and it has to furnish to the Corporation specimen signatures of the officers authorised to sign the statements and returns under the DICGC Act, 1961.

The liquidator of a bank which has been wound up or liquidated and the chief executive officer of the transferee bank or the insured bank as the case may be in the case of amalgamation or reconstruction etc. sanctioned by a competent authority, is required to submit quarterly statements in the prescribed formats to the DICGC indicating the particulars of utilization of the amounts released by the DICGC, the position of realisation of assets of the bank and utilization of the amounts thereof and the assets and liabilities of the bank.

Supervision and Inspection of Insured Banks

The Corporation is empowered (vide Section 35 of the DICGC Act) to have free access to the records of an insured bank and to call for copies of such records. On Corporation’s request, the RBI is required to undertake / cause the inspection / investigation of an insured bank.

Settlement of claims

In the event of the winding up or liquidation of an insured bank, every depositor of the bank is entitled to payment of an amount equal to his deposits held by him in the same right and in the same capacity in all the branches of that bank put together, standing as on the date of cancellation of registration (i.e. the date of cancellation of licence or order for winding up or for liquidation) subject to the set off of his dues to the bank, if any (Section 16(1) and (3) of the DICGC Act). However, the payment to each depositor is subject to the limit of the insurance coverage fixed from time to time.

When a scheme of compromise or arrangement or re-construction or amalgamation is sanctioned for a bank by a competent authority, and the scheme does not entitle the depositors to get credit for the full amount of the deposit on the date on which the scheme comes into force, the Corporation pays the difference between the full amount of deposit or the limit of insurance cover in force at the time, whichever is less, and the amount actually received by him under the scheme. In these cases also the amount payable to a depositor is determined in respect of all his deposits held in the same right and in the same capacity in all the branches of that bank put together subject to the set off of his dues to the bank, if any (Section 16(2) and (3) of the DICGC Act).

Under the provisions of Section 17(1) of the DICGC Act, the liquidator of an insured bank which has been wound up or taken into liquidation has to submit to the DICGC a list showing separately the amount of the deposit in respect of each depositor and the amount set off, in such a manner as may be specified by the DICGC and certified to be correct by the liquidator, within three months from the date of his assuming charge of office.
In the case of a bank for which a scheme of amalgamation/ reconstruction, etc. has been sanctioned, similar list has to be submitted by the chief executive officer of the concerned transferee bank or insured bank as the case may be, within three months from the date on which the scheme of amalgamation/reconstruction, etc. comes into effect (Section 18(1) of the DICGC Act).

The DICGC is required to pay the amount payable under the provisions of the Act in respect of the deposits of each depositor within two months from the date of receipt of such lists. The time-limit is, however, subject to all the information/documents as required by the Corporation being in order.

On the receipt of an order for the liquidation of a bank or a scheme of amalgamation/reconstruction etc. for a bank approved by a competent authority, the Corporation sends detailed guidelines for compilation of the claim list to the liquidator/chief executive officer of the transferee or insured bank, as the case may be. Besides, copies of the audited balance sheet and the profit and loss accounts of the bank as on the date of cancellation of registration i.e. the date of cancellation of licence /liquidation/amalgamation /reconstruction etc. of the bank are called for, to verify the authenticity of the total deposits as given in the claim list. A check list relating to the discrepancies commonly observed in the course of scrutiny of the claim lists is given in the Annexure.

The DICGC makes the payment of the eligible amount to the liquidator/chief executive officer of the transferee / insured bank, for disbursement to the depositors. No payment is made directly to the depositors. However, the amounts payable to the untraceable depositors i.e. those in respect of whom necessary information is not available, are held back till the liquidator/chief executive officer is in a position to furnish all the requisite particulars.

In terms of Section 21(2) of the DICGC Act read with Regulation 22 of the DICGC General Regulations, the liquidator or the insured bank or the transferee bank as the case may be, is required to repay the amount to the DICGC within such a time and in such a manner as may be prescribed, out of the amounts realised from the assets of the failed bank and other amounts in hand after making provision for the expenses incurred, as soon as such amounts are sufficient to pay to each depositor one paisa or more in the Rupee.

Accounts

The Corporation maintains the following Funds:

• Deposit Insurance Fund
• Credit Guarantee Fund
• General Fund

The first two are funded respectively by the insurance premia and guarantee fees received and are utilised for settlement of the respective claims.The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation.

The surplus balances in all the three Funds are invested in Central Government securities which is the only investment permissible under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the income derived out of such investments is credited to the respective Funds. Inter-Fund transfer is permissible and if there is a shortfall in one of the Funds, it is made good by transfer from either of the other two Funds.

The Corporation has adopted from 1987, the system of actuarial valuation of the liabilities of Deposit Insurance and Credit Guarantee Funds every year. The Corporation has become assessable for income tax starting from the Assessment Year 1988-89.

The books of accounts of the Corporation are closed as on 31st March every year. The affairs of the Corporation are audited by an Auditor appointed by the Board of Directors with the previous approval of RBI. The audited accounts together with Auditor’s report and a report on the working of the Corporation are required to be submitted to RBI within 3 months from the closing of accounts. Copies of these documents are also submitted to the Central Government, which are laid before each House of the Parliament.

Administration

The Administration Department of DICGC attends to all staff and establishment related functions in respect of the employees of the Corporation who all are the employees of RBI. DICGC is treated as an independent salary drawing unit.

The Board Section attends to all matters relating to arranging for the Board Meetings, preparation of the agenda notes and minutes of the Board Meetings and monitoring compliance of the decisions taken in these meetings.

Membership of The Chandigarh State Cooperative Bank Ltd. Chandigarh with DICGC

As per the letter no. DICGC/BRC/13499/05.35.001/11-12 dated 20th March 2012 the DICGC has extended the deposit insurance scheme to all eligible Cooperative Banks in the Union Territory of Chandigarh with effect from 22nd November 2011. The registration number of the bank is CHA-1. Since then the bank is registered as an insured bank. The deposit of each and every customer (except those who are excluded from cover as per rules of the DICGC) of the Chandigarh State Cooperative Bank Ltd. Chandigarh is insured as per the rules framed by the DICGC. The bank is remitting the premium regularly well in time.