Insurance Cover on Bank FDS, Deposits Increased to ₹5 Lakh (₹5,00,000)

Insurance Cover on Bank FDS, Deposits Increased to ₹5 Lakh (₹5,00,000)

Insurance Cover on Bank FDS, Deposits Increased to ₹5 Lakh (₹5,00,000)

Background Context

In current Budget 2020 story, the most recent finance minister Mrs. Nirmala Sitaram has put forward the idea to increase the bar (limit) of insurance cover in unfortunate situation of bank failure on deposit to ₹5 Lakh form earlier limit of ₹1 Lakh. This proposal or peoposed amendment came in wake of PMC bank crises. 

What exactly is deposit inrurance? and How it it regulated in India?

Deposit Insurance is protection to depositors investment make towards bank, the protection is by receiving a premium. 

  • Firstly, the Govt. constituted and established "Deposit Insurance and Credit Gurantee Corporation (DICGC)" under the the shelter of Reserve Bank of India (RBI), to safeguard the depositors, in case bank fails. 
  • Secondly, to avail this insurance, the respective bank pays 0.001% of its deposit towards DGICC every year. 

What to expect when bank fails on depositors money?

  • In case of unfortunate events, such as bank liquidation, insured depositors automatically qualify to receive an assured sum (insurance amount) of ₹1 Lakhs/individual. 
  • Depositors to receive this insurance amount from "Deposit Insurance and Credit Gurantee Corporation of India (DICGC).
  • Insurance amount (i.e. ₹1 Lakh) inclusive of principle and interest across depositors bank accounts (saving, current, as well as recurring deposits held in bank, if any).

How Depositors can Claim the Money from Failed Bank? 

DICGC is not directly involved with the depositors and their investoments.

  • Event of Bank Liquidation: An event of "Bank Liquidation" will trigger the RBI to appoint set of official liquidators to observe the liquidation process and ensure depositors get paid the insurance amount.
  • On Bank Side:  Initially the liquidators are supposed to produce the entire list of insured depositors and their investment to DICGC within first three months of RBI taking charge of the liquidation process.
  • Role of DICGC: After receiving the list of insured depositors from the bank undergoing the winding-up and liquidation process, the DICGC is expected to pay the insured amount within two months of receiving the list.
These moves of insuring the bank depositors will ensure people continue to make regular deposits and investment in their bank of choice. Earlier in Fiscal Year 2019, DICGC took around 1,425 days to settle the first claim, that came from de-registered bank.

Who are insured by the DICGC ?
The "Deposit Insurance and Credit Gurantee Corporation of India" gurantee the coverage of all commercial and co-operative banks, except in Lakshadweep, Dadra and Nagar Haveli, Meghalaya, Chandigarh. Primary cooperative socities are not covered under DICGC. 

List of Deposits not covered by the DICGC

  • Deposits made by the overseas/foreign Government.
  • Deposits made by the State and Central Governments.
  • Inter-Bank deposits 
  • Deposits and Investment State Land Development Bank with the State Co-Operative Bank.
  • Any amount due on respective account of any respective deposit collected outside of India.
  • Amount especially exempt or waived by DICGC with earlier approval from RBI.

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