As per the law, all the banks in our country are registered with the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of Reserve Bank of India. It was established in 1961 under Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities. DICGC insures all bank deposits, such as savings, fixed, current, recurring deposits for up to a limit of INR 1,00,000/- of deposit in each bank.
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 to exercise the power conferred by sub-section (3) of Section 50 of the Act. All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC.
Besides commercial banks, all the cooperative Banks of States, Central and Primary cooperative banks, are also called urban cooperative banks. They function in States/Union Territories which have amended the local Cooperative Societies Act. This empowers the Reserve Bank of India to order the Registrar of Cooperative Societies of the State/Union Territory to shut the operations of a cooperative bank. It can also supersede the management committee asking the Registrar not to take any action regarding closure, amalgamation or reconstruction of a co-operative bank without prior approval in writing from RBI. At present all co-operative banks other than those from the State of Meghalaya and the Union Territories of Chandigarh, Lakshadweep and Dadra and Nagar Haveli are covered by the DICGC. Primary cooperative societies are not insured by the DICGC.
Insurance coverage: Earlier as per the provisions of Section 16(1) of the DICGC Act, the insurance cover was limited to INR 1500 for each person in the same capacity for all the branches a particular bank. 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. With effect from 1 May 1993, the limit has been extended of INR100000.
In the event of winding up or liquidation of an insured bank, every depositor of the bank is entitled to receive amount equal to his deposits 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 license or order of winding up or for liquidation) subject to the settlement 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.
Under the provisions of Section 17(1) of the DICGC Act, the liquidating bank has to submit a list of people with the amount of their deposit to DICGC within three months. If the bank is merging with another bank, a similar list has to be submitted by the Chief Executive Officer of the Acquiring Bank within three months as per Section 18(1) of the DICGC Act.
The DICGC is required to pay back the deposits to each depositor within two months from when it receives the list of depositors. The time limit is however subject to all the information/documents being in order as required by the Corporation. For further details with regard to DICGC, readers may refer here.
The Vasantdada Shetkari Sahkari Bank, Maharashtra was ordered to shut down because its banking license was cancelled by the Reserve Bank of India. There were several credit society’s depositors with over Rs.20 crore deposits filed their petitions before Hon’ble Bombay High Court for realization of their deposits.
A division bench of the Court, comprising Justice Abhay Oka and Justice Mahesh Sonak, while dismissing all petitions filed by credit societies exercised the rule of Rs.1 lakh which states – If a bank goes bust, its depositors will get up to maximum of Rs.1 lakh from the banking insurance system. The court further said that when a bank is ordered for closure, the Insurance indemnity scheme kicks in all depositors who have deposits of less than Rs.1 lakh and they are given the exact amount of their deposits, while all depositors who have more than Rs.1 lakh deposit will not get anything more than the limit.
If you are a depositor and need any help to get your deposit back within the limit of 1 lakh from the Banking Insurance Company, you may connect with our Award Winning Consumer Rights Adviser for free at www.powertoconsumer.in.