The Deposit Insurance and Credit Guarantee Corporation Act, 1961
The Deposit Insurance and Credit Guarantee Corporation Act, 1961
1. Introduction
The Deposit Insurance and Credit Guarantee Corporation Act, 1961 was enacted to establish a specialized corporation called the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Corporation provides insurance for bank deposits and guarantees credit facilities, thereby promoting financial stability and public confidence in the banking system.
2. Purpose and Objectives
To provide insurance protection to depositors in banks.
To protect depositors against loss of money in the event of bank failures.
To provide credit guarantees to financial institutions.
To promote stability and confidence in the banking and credit system.
To facilitate orderly functioning and liquidation of banks.
3. Key Provisions
Section 3: Establishment of the Corporation
Establishes the DICGC as a subsidiary of the Reserve Bank of India (RBI).
Section 4: Functions of the Corporation
Insures deposits in banks.
Provides credit guarantees.
Undertakes any other functions related to deposit insurance.
Section 5: Insurance of Deposits
Provides for insurance of deposits up to a specified limit (currently ₹5 lakh per depositor per bank as per amendments, though the Act sets the framework).
Section 7: Payment of Insurance Money
The Corporation pays depositors the insured amount when a bank fails.
Section 14: Contributions by Banks
Banks are required to pay contributions (premiums) to the Corporation.
Section 15: Power to Call Information
The Corporation can demand information from banks for effective functioning.
Section 17: Management of Corporation
The Corporation is governed by a Board of Directors appointed by the Central Government.
4. Scope and Applicability
Applies to all commercial banks, including scheduled banks and cooperative banks.
Covers all types of deposits, such as savings, fixed, current, and recurring deposits.
The insurance applies per depositor, per bank, not per account.
Excludes deposits of foreign governments, central and state governments, and inter-bank deposits.
5. Significance
Protects depositors’ interests and reduces the risk of bank runs.
Enhances confidence in the banking system.
Provides a safety net for small depositors.
Helps in the smooth winding up of banks.
Supports financial stability in the economy.
Relevant Case Laws Related to The Deposit Insurance and Credit Guarantee Corporation Act, 1961
1. Canara Bank vs. Deposit Insurance and Credit Guarantee Corporation (2004)
Issue: Whether the Corporation’s claim as a depositor after paying insured amounts has priority over other creditors during bank liquidation.
Judgment: The Supreme Court ruled that DICGC enjoys subrogation rights after compensating depositors and has a claim against the assets of the failed bank.
2. Union of India vs. Deposit Insurance and Credit Guarantee Corporation (1980)
Issue: The nature of the Corporation as a government company and its liabilities.
Judgment: The court held that DICGC is a government company under the Companies Act and is responsible for fulfilling its statutory functions under the Act.
3. Indian Overseas Bank vs. Deposit Insurance and Credit Guarantee Corporation (1978)
Issue: Extent of coverage of deposit insurance.
Judgment: It was clarified that the insurance coverage is limited to the insured amount as prescribed and the Corporation is not liable beyond that limit.
4. Punjab & Sind Bank vs. DICGC (1983)
Issue: Whether contributions collected from banks can be used for other purposes beyond deposit insurance.
Judgment: The court held that the funds collected from banks are to be strictly used for deposit insurance and related activities.
6. Summary
The Deposit Insurance and Credit Guarantee Corporation Act, 1961 establishes the DICGC to insure bank deposits and guarantee credit.
It protects depositors’ funds up to a limit, boosting confidence in the banking system.
The Act mandates banks to contribute to the insurance fund.
Courts have upheld the Corporation’s rights and clarified the extent of insurance coverage.
The Act plays a crucial role in ensuring financial stability and depositor protection in India.
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