Deposit Insurance And Credit Guarantee Corporation: Arming Up A Dormant Provision?
The Union Cabinet recently approved the DICGC (Amendment) Bill, 2021, which marks for some paramount changes to the deposit insurance laws as the same is argued to be aimed at revolutionising the position of the depositor in a bank under moratorium imposed by RBI.
The government further claims to have made the changes for reducing the timeline of returns and enhancing the amount of returns payable to the depositor after the Bank Company falls into the jar of distressed banks[1]. The situation had no doubt become grim for the depositors with the government encouraging digital transactions and maintaining proper bank and income records, while the reputed banks with the likes of Yes Bank and Lakshmi Vilas Bank entering into the long list of distressed banks, as it was the Depositor who was being thrown under the bus.
It shall now be apt to first understand the background of this age old provision established in a decade or so post-independence titled as “The Deposit Insurance and Credit Guarantee Corporation Act, 1961”. The Act, 1961 as introduced in the parliament for the first time on August 21, 1961 as Deposit Insurance Act, 1961 intended to extend aid to the functioning commercial banks[2], which then pursuant to amendments, has reached the present stature. The Act before the current amendment in process was last amended in 2006 [3]whereby minor rectifications were made.
The provisions, structure and functioning of DICGC may be briefly explained by discussing the following aspects and avenues of the Act, 1961:
Who is the Corporation: The Act, 1961 through its Chapter II [4]provides for the establishment of corporation by the Central Government with authorised capital of one crore and power and controls to the Board of Directors which shall include Governor of the Reserve bank (currently being held by Mr. M.D. Patra, Deputy Governor, RBI[5]) and Joint Secretary, Department of Financial services with Chairman, National Bank for Agriculture and Rural Development as nominated by central Government. [6]
Who is insured bank:
Chapter III of the Act, 1961[7] provides for the existing and new Banking Companies along with Regional Rural Banks and Co-operative Banks to be registered with the DICGC for the purpose of insurance of the depositors amount.
Concept of ‘Banking Company’[8] is defined to include any Company which transacts in the business of banking in India and includes State Banks but does not include Tamil Nadu Industrial Investment Corporation Limited, while Banking has been defined as accepting for the purpose of lending or investment, deposit of money from the public repayable on demand or otherwise, withdrawable for cheque, order or otherwise[9].
Who to pay the premium: It is the banks who are getting the sum insured for the depositors and the onus is therefore on them to pay the amount of the premium recoverable by the corporation post registration.[10] The same is further clarified by the DICGC in point 12 of the A Guide to Deposit Insurance. [11]
Manner of Payment to Depositor: The liability as per the provisions of section 16 of the Act, 1961 is of the Corporation to pay every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made.
The Corporation therefore is bound to make the requisite payment to the Depositor directly, through agency or through liquidator, within two months from the receipt of list of depositors from the liquidator which shall be submitted by it within three months from the order of appointment. [12]
Role of Depositor:
The depositor as explained through the purview of definition of ‘deposit’ in section 2(g) of the Act, 1961 excludes Foreign Government, Central Government, State Government, New Bank, Regional Bank, Banking Company or Co-Operative Banks. The role of the depositor is nowhere linked to the Corporation and the same merely remains with the insured bank.
Now, with a clearer view on the structure, functioning and process of Deposit Insurance and Credit Guarantee, coming back to the recent armouring of the provision of law, the Government allowed for some major changes which are discussed as below:
- Increasing the upper limit of insured Sum to Rs. 5,00,000/- from earlier threshold of Rs. 1,00,000/-
The enhancement of upper limit as recommended by the Damodaran Committee on ‘Customer Services in Banks’ 2011 shall be a huge positive for the middle class people and economically weaker section of the society who hold bank accounts with savings and balances below or equal to Rs. 5,00,000/-, however the same shall be only a minor relief to the corporate houses and commercial depositors who happen to have huge amounts deposited in banks for ease of transactions.
- Time limit for repayment of the due insured sum to be 45 days plus 45 days:
From the perusal of the media reports and the official statement of Hon’ble Finance Minister of our nation, it points towards the amendment in section 17 of the Act, 1961 whereby the time line started after order of liquidation and thereafter time period of three months and two months was affixed, whereas the present amendment reduces the same to 45 days each.
- The payment to be issued by the corporation with regard to the banks under moratorium and also the banks which appear to be nearing the stage of moratorium
This amendment may prove to be real game changer as the major drawback that was subsisting in the present statute was the delay, as was also explained in press statement by the Hon’ble Finance Minsiter[13], wherein time period of an average 8-10 years was reflected after which the payment was released to the depositor which therefore used to defeat the entire purpose of the Corporation to save the interest of the Depositors. The new provision shall therefore enable the timeline of 90 days to start before the order of liquidation is passed.
- 20% Enhancement of premium:
The premium has been accordingly increased from 10 paise per Rs. 100 to 12 paise per Rs. 100 in order to ascertain that the Corporation does not stand on the loosing side of the table, the same however has been an enabling provisions which is yet to be given a nod by the RBI and Government of India
Points to Ponder
– The registration of the banks with the DICGC has been an obligation upon the bank and in situations where the banks fail to do so or end up being unregistered in event of default of premium, the loss accrues on the depositor and that the former shall therefore be made mandatory.
– There may be requirement of establishment of a specialised dispute resolution forum for the aggrieved depositors who happen to have not received their sum or have any grievance regarding the amount.
– The Depositors therefore shall be made aware of the banks that have themselves registered with the DICGC by way of notification from the Authorised department from time to time in order for the depositor to avail the benefit and choose the banking medium wisely.
Conclusion
The present amendment to the act, 1961 is more than armouring an old weapon which has been lying dead for a while and is instead what appears to be an upgradation for effective and efficient use of the outdated weapon. The Act, 1961 post amendment shall presumably bring a sigh of relief to many as the Bill is claimed to cover 98.3% of depositrs and 50.09% of deposit value in banking system, [14] and the pressure on the distressed banks may also be shared.
[1] https://indianexpress.com/article/business/banking-and-finance/cabinet-decisions-july-28-key-announcements-amendment-to-dicgc-act-deposit-insurance-credit-guarantee-corporation-nirmala-sitharaman-7426837/
[2] History of GICGC- https://www.dicgc.org.in/AU_History.html
[3] Act 30 of 2005 (w.e.f. 14-12-2006)
[4] Chapter –II: Establishment and Management of the Deposit Insurance Corporation
[5] DICGC, Board of Directors: https://www.dicgc.org.in/AU_BoardOfDirectors.html
[6] Nominations under Section 6(1)(a) of the Act, 1961
[7] Chapter –III Registration of Banking Companies (and Co-operative Banks) as insured Banks and Liability of Corporation to Depositories
[8] Section 2 (b) of DICGC Act, 1961
[9] Section 2(a) of DICGC Act, 1961
[10] Section 15 :Premium (1) Every insured bank shall, so long as it continues to be registered, be liable to pay a premium to the Corporation on its deposits at such rate or rates as may 3 [with the previous approval of the Reserve Bank, be notified by the Corporation, from time to time, to the insured banks and different rates may be notified for different categories of insured banks:]
[11] Guide to Depositor Insurance: https://www.dicgc.org.in/FD_A-GuideToDepositInsurance.html#q11
[12] Section 17 of the Act, 1961
[13] “Normally, it takes 8 – 10 years after complete liquidation to get money under insurance; but now, even if there is a moratorium, within 90 days, the process will definitely be completed, giving relief to depositors,” the Union Minister said
https://www.cnbctv18.com/finance/depositors-to-get-rs-5-lakh-insurance-within-90-days-if-bank-under-moratorium-fm-10151911.htm
[14] https://www.indiatoday.in/business/story/relief-for-depositors-in-stressed-banks-as-cabinet-clears-amendments-to-dicgc-act-1833773-2021-07-28
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