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DEPOSIT INSURANCE AND CREDIT, GUARANTEE CORPORATION OF INDIA, (DICGCI), HISTORICAL BACKGROUND –,  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 (suspension) 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 cooperative bank (whether it is a State co-operative bank, a Central cooperative 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 cooperative bank or to supersede its Committee of Management and to, 1|Page

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, , , , , , , , 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., , 2|Page

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ABOUT DICGC –, Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised, division and a wholly-owned subsidiary of Reserve Bank of India which is under, the jurisdiction of Ministry of Finance, Government of India. It was established, on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation, Act, 1961 for the purpose of providing insurance of deposits and guaranteeing, of credit facilities. It provides deposit insurance that works as a, protection cover for bank deposit holders when the bank fails to pay its, depositors., The agency insures all kinds of deposit accounts of a bank, such as savings,, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account, holder per bank. In case an individual's deposit amount exceeds Rs.5 lakh in a, single bank, only Rs.5 lakh, including the principal and interest, will be paid by, DICGC if the bank becomes bankrupt., , FRAMEWORK OF DICGC –, DICGC protects depositors' money kept in all commercial and foreign banks, located in India; central, state, and urban co-operative banks, regional rural, banks and local banks, provided that the bank has opted for DICGC cover., The functions of the subsidiary 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 Act. The act states that the, establishment of this corporation is with the aim of insuring deposits,, guaranteeing credit facilities, and other related matters., A maximum of Rs.5,00,000 (after the budget of 2020-21) is insured for each, user for both principal and interest amount. If the customer has accounts in, different branches of the same bank, all of those accounts are insured to a, maximum of Rs.5,00,000 each., However, if there are more accounts in same bank, all of those are treated as a, single account. The insurance premium is paid by the insured banks itself. This, means that the benefit of deposit insurance protection is made available to the, depositors or customers of banks free of cost., 3|Page

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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. The, Corporation may restore the registration of the bank if the bank makes a, request and pays all the amounts due by way of premium from the date of, default together with interest., , REFORMS –, The Financial Sector Legislative Reforms Commission (FSLRC) was set up by the, Government of India, Ministry of Finance, on 24 March 2011, to review and, rewrite the legal-institutional architecture of the Indian financial sector. In its, report the FSLRC recommended a regulatory structure consisting of seven, agencies including the deposit insurance-cum regulatory agency (which was, named as Resolution Corporation). The present DICGC will be subsumed into, the Resolution Corporation (RC) which will work across the financial system., Drawing on the best international practice, the FSLRC proposal involved a, unified resolution corporation that will deal with an array of financial firms, such as banks and insurance companies, it will not just be a bank deposit, insurance corporation. It will concern itself with all financial firms which make, highly intense promises to consumers, such as banks, insurance companies,, defined benefit pension funds, and payment systems., It will also take responsibility for the graceful resolution of systemically, important financial firms, even if they have no direct links to consumers., The Government of India introduced the Financial Resolution and Deposit, Insurance bill, 2017 (FRDI bill) in Lok Sabha in the Monsoon session of 2017 to, bring forth these reforms. There have been many concerns with regards to the, new bill such as:,  Presently the banks have to pay a sum to the DICGC as insurance, premium which insures all kinds of bank deposits up to a limit of, Rs.5,00,000. In case a stressed bank had to be liquidated, the depositors, would be paid through DICGC. Though the bill proposes the banks to pay, a sum to the Resolution Corporation, it neither specifies the insured, amount nor the amount a depositors would be paid. It is thus unclear, how much a depositor would be paid in case of liquidation.,  The bail in clause which largely worked against the interests of the, depositors (as in Cyprus)., 4|Page

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FRDI Bill 2017 –, The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) was, introduced in Lok Sabha during monsoon session, 2017. Currently, the bill is, being examined by the Joint Committee of the two houses of the Parliament., The main intention of the bill is to protect consumers of the financial service, providers in the cases of ‘bail out’ of either banks or a major defaulter, customer of bank. Thereby, it seems at maintaining financial stability by in, cheering adequate preventive measures., It aims at creating and environment of discipline in the event of financial crisis, for the financial service provider (Banks, Financial institution etc.,) by, restricting the use of public money to ‘bail out’ distressed entities. The current, framework of deposit insurance will be strengthened and streamlined in favour, of retail depositors., , SALIENT FEATURES OF THE FRDI BILL 2017 –, a) Resolution Corporation, The Bill provides for creating a principal agency referred to as the resolution, corporation. The agency will have multiple roles of supervision and oversight, from a viability perspective and act as liquidators or receiver in case of, liquidation of entities having imminent risk to ensure quick payments to, depositors and settle the claims., b) Covered Service Provider, All the service providers encompassing any banking institution, any insurance, company or any other financial service provider (excluding individuals and, partnership firms) and include Indian branches of foreign banks are covered as, service providers., c) Systematically Important Financial Institution (SIFIs), The FRDI Bill provides for designation of certain categories of financial, institutions as SIFIs by the Central Government. All the provisions of the, Bill/Act will be applicable to them, with some exceptions as may be provided., , 5|Page

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d) Time Limit on Resolution, Any process of resolution of covered service providers shall be completed, within a period of two years from the date on which such entities classified to, be critical risk to viability. However, such period two years may be extended, for one more year., , CONSOLIDATION OF EXISTING LAWS RELATING TO, RESOLUTION OF CERTAIN CATEGORIES OF FINANCIAL, INSTITUTIONSFRDI Bill proposes to consolidate the existing laws relating to resolution of, certain categories of financial institutions into a single legislation:, a) Repeal, , of Deposit Insurance, Corporations (DICGC) Act, 1961, , and, , Credit, , Guarantee, , Once FRDI Bill is enacted, the DICGC shall stand dissolved and all its functions, will be carried out by the Resolution Corporations., b) Cross Border Resolution, FRDI Bill also provides for enforcement of resolution in a foreign country, provided, there is a mutual agreement between the Indian government and, foreign country, including the financial regulators of both countries., c) Benefits of FRDI Bill, 2017, The bill can benefit a large number of retail depositors as it seeks to decrease, the time and cost involved in resolving distressed financial entities. Once, implemented this Bill will provide a comprehensive resolution framework of, the economy., , DICGC ACCREDITATION –, When banks register with DICGC, the agency grants a printed certificate to the, bank that displays information regarding the protection offered by DICGC to, depositors of the insured bank. If there is any doubt, customers can enquire, with the bank officials on the same., 6|Page

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DICGC MANAGEMENT –, 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., 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., (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, cooperation, economics, finance, law or small scale industry or any, other matter which may be considered to be useful to the, Corporation., , 7|Page

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WHAT DICGC DOES NOT COVER –,  Deposits of state or Central governments.,  Deposits from foreign governments.,  State land development banks depositing with the state co-operative, bank.,  Inter-bank deposits.,  Funds that are due on account of India and deposits received outside, India.,  Funds exempted by the corporation with the previous approval from, RBI., , WHEN IS DICGC LIABLE TO PAY –, If a bank goes into liquidation, DICGC is liable to pay to the liquidator the claim, amount of each depositor upto Rupees five lakhs within two months from the, date of receipt of claim list from the liquidator. The liquidator has to disburse, the claim amount to each insured depositor corresponding to their claim, amount.", If a bank is reconstructed or amalgamated / merged with another bank: The, DICGC pays the bank concerned, 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 received by him under the reconstruction / amalgamation, scheme within two months from the date of receipt of claim list from the, transferee bank / Chief Executive Officer of the insured bank/transferee bank, as the case may be.", , CAN THE DICGC WITHDRAW, COVERAGE FROM ANY BANK?, , DEPOSIT, , INSURANCE, , The Corporation may cancel the registration of an insured bank if it fails to pay, the premium for three consecutive periods. In the event of the DICGC, withdrawing its coverage from any bank for default in the payment of, premium the public will be notified through newspapers. 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, 8|Page

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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 event of the cancellation of registration of a bank, deposits of, the bank remain covered by the insurance till the date of the cancellation., , 9|Page