Urgent Need to Change the Deposite Insurance and Credit Guarantee Act (DICGC ACT) 1961
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On the lines of developed countries India has also established Deposit Insurance and Credit Guarantee Corporation (DICGC), for protection of bank depositors in the event of bank going bankrupt. This Corporation is established under Deposit Insurance and Credit Guarantee Corporation Act, 1961 passed by the Parliament and working as subsidiary company of the Reserve Bank of India fully controlled and managed by RBI. The entire share capital of Rs.50 Cr has been subscribed by RBI. Following are some of the salient points of the working of this Corporation:
1) Banks covered under the Act:-All private, government, co-op banks are compulsorily covered in the deposit insurance Scheme. As at March 2016, 93 Commercial banks, 56 Regional Rural Banks, 4 Local Area Banks and 1974 Co-Operative banks were registered with the Corporation.
2) Who pays the insurance premium: All member banks are required to pay premium @0.10% of the total deposits with them.
3) Maximum Insurance Coverage: Since 1st May 1993 it is Rs.1 lakh ( Rs. One lakh) only per account per bank.Deposit includes all types of deposits such as Fixed Deposits, Recurring Deposits, Savings deposits. At the end of March 2016,out of total deposits of Rs.94053 billion, the Corporation had provided insurance cover to deposits amounting to Rs.28264 billion though it recovered premium on entire deposits with the banks.
5) Data regarding banks going bankrupt in India: The incidence of private banks going bankrupt is not much in our country. But the incidence of Co Op. Banks going bankrupt is considerable. Since the incorporation of the Corporation to March 2016, total 332 Co-operative banks and 27 Private Sector banks went bankrupt. The Corporation reimbursed Rs.4680 Crores and Rs.296 Crores to the account holders of these banks.
6) Financial position of the Corporation: The main source of income of the Corporation is Insurance Premium and Income from Investments in addition to share capital. The income from premium increased to Rs.9199.50 Cr.in 2015-16 from Rs. 4844 Cr. during 2010-11. Income from investments during this period also increased to Rs.4783 Cr from Rs.1801 Cr in 2010-11. The Corporation had earned net revenue of Rs.6145 Cr. before tax (Rs.4135 Cr. Post Tax). It rose more than double in five years to Rs.14673 Cr. before tax (Rs.9596 Cr post Tax). The Deposit Insurance Fund of Rs.24704 Cr in 2010-11 zoomeed to Rs.60,300 Cr.in 2015-16.
Thus, it can be observed that financial position of this Corporation is very sound.
Need for amendment in the Deposit Insurance and Credit Guarantee Corporation Act 1961: In India maximum deposit insurance cover provided to bank depositors is Rs.1 lakh per bank per customer since May 1993 i.e.23 years. As against this, it is 79300$ (Rs.53.93 lakh) in Brazil, 75000$ (Rs.51 lakh) in Canada, 100000$ (Rs.68 lakh) in Switzerland and 250000$ (Rs.1.70 Cr in America. When the present upper ceiling for insurance coverage was fixed in India in May 1993, gold price ruling then was Rs.4100/- per Tola and the depositor could have purchased 24 tola gold with that amount. Now after 24 years, the purchasing power of that amount is only 3.44 tola. Thus, there is a strong case for immediate upward revision in the upper celling of the reimbursable amount in the event of bank going bankrupt. Majority of the bank depositors who are from middle/lower middle class, prefer investing their hard money in Co -Operative banks as they offer not only more rate of interest but also provide better and friendly treatment than nationalised banks. Most of the depositers includes farmers and old age people and hence if this Act will be amended it will help to reduce farmer's suicide and help them to have financial support which they actually deserve.This DICGC Act has been made by Parliament to support the depositers in bankruptcy condition but according to above analysis it is clear that this Deposite insurance and credit guarantee coporation is ultimately helping the loan defaulters by not making any strict rules to favour the interest of poor depositers. And because of the limitations of DICGC act many banks are going bankrupt as laon defaulters are not having any fear of doing fraud.
Power of the Central Government to revise the existing limit:
Section 16 of DICGC Act empowers Central Government to revise this amount in consultation with Reserve Bank and considering the financial position of the Corporation. As brought out earlier this corporation has very sound financial position and is very well in a position to settle the claims without any problem even if the limit is increased to Rs. 5 lakh. Moreover, the Corporation also has a right to recover the amount paid to the liquidator of the bankrupt bank for satisfying the claims of the depositors from the disposal of assets of that bank. This exercise will not only strengthen the banking system alone but also enhance peoples faith in Cooperative movement. Further it will also earn lot of gratitude and goodwill from the aam depositors who are always at a loss when their bank goes bankrupt. It is high time for Modi Govt. to earn the goodwill of millions of Indians without any outgo from its coffers or burden on any banks. No government during last 24 years have thought of review of this limit, which has resulted in huge losses to the innocent depositors of duped, bankrupt banks.
I have another suggestion to make in this regard. There should be provision for periodical review of insurance coverage after a certain specified period so as to set off inflationary effect on the compensational amount.
My third suggestion is for providing ,’ on account payment’ to the depositors by the Corporation as soon as RBI puts restrictions on acceptance and payment of deposits on banks on the verge of closure due to financial irregularities. At present, RBI takes years to finally declare any ailing bank as ‘bankrupt’. Till the time bank is not declared bankrupt, Corporation doesn’t come into the picture. The helpless depositors have to undergo financial hardships till that time. My suggestion is that as soon as RBI puts restrictions on any bank, Corporation should make advance payment say 50% to the depositors to be adjusted against final payment. This will facilitate old age depositors to receive certain payment badly needed in the old age.
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