Deposit Insurance and DICGC: Cover, Premium and Rules

The correct answer is C, the Reserve Bank of India. The Deposit Insurance and Credit Guarantee Corporation is a wholly owned subsidiary of the Reserve Bank of India. It works under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, has its head office in Mumbai, and is chaired by a Deputy Governor of the Reserve Bank. Its entire capital of fifty crore rupees is held by the Reserve Bank. Option A is wrong because the Securities and Exchange Board of India regulates the securities market and has no role in protecting bank deposits. Option B is wrong because, although Parliament passed the Act, the Corporation is not a department or an arm of the Ministry of Finance; the Reserve Bank owns it and runs it. Option D is wrong because the National Bank for Agriculture and Rural Development refinances rural credit and supervises co-operative and regional rural banks, but it does not insure anybody deposits. Candidates lose this mark by confusing who regulates a bank with who insures its depositors.

The correct answer is C, five lakh rupees. Every depositor of an insured bank is covered up to five lakh rupees, and that figure takes in the principal and the accrued interest together. All the deposits a person holds in the same right and the same capacity in one bank are added up, across every branch and every account, before the limit is applied. Option A is wrong because one lakh rupees was the cover from 1 May 1993 until it was raised; it is the most tempting distractor because it stood for nearly three decades. Option B is wrong because two lakh rupees has never been a deposit insurance limit in India. Option D is wrong because ten lakh rupees is not the limit either, though candidates sometimes double the figure from memory. Note the unit of cover as well: money split across three branches of one bank still gets a single cover of five lakh rupees, while the same money in three different banks is covered three times over.

The correct answer is D, 1978. The Corporation came into being on 15 July 1978, when the Deposit Insurance Corporation was merged with the Credit Guarantee Corporation of India Ltd, and the Deposit Insurance Act, 1961 was renamed the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Option A is wrong because 1961 is the year of the parent Act, not of the merged Corporation. Option B is wrong because 1 January 1962 is the day deposit insurance actually began working in India, under the Deposit Insurance Corporation. Option C is wrong because 1971 is the year the Credit Guarantee Corporation of India Ltd was set up, the body that later merged in. These four years form a chain examiners enjoy shuffling, so fix them in order: 1961 the Act, 1962 the start of cover, 1971 the credit guarantee body, and 1978 the Corporation as it stands today.

The correct answer is B, the insured bank, out of its own earnings. The whole of the deposit insurance premium is paid by the bank, and a bank is barred from passing the cost on, so the charge never appears in a depositor passbook. Option A is wrong for exactly that reason: the depositor pays nothing at all for the cover. Option C is wrong because the Reserve Bank of India owns the Corporation but does not pay premium on behalf of banks; the Corporation collects premium from each insured bank on its assessable deposits. Option D is wrong because the Central Government neither pays the premium nor guarantees bank deposits. Claims are met from the Deposit Insurance Fund, which is built up from premia, from recoveries out of the assets of failed banks and from the income on the Corporation investments. The premium is payable half yearly in advance, and a bank that defaults for three consecutive half year periods risks having its registration cancelled.

The correct answer is C, deposits of one bank kept with another bank. Inter-bank deposits are expressly excluded, because deposit insurance exists to protect ordinary depositors and not to insure banks against one another. Option A is wrong as an answer because savings bank deposits are squarely covered. Option B is wrong because recurring deposits are covered in the same way. Option D is wrong because a current account balance is also an insured deposit; candidates sometimes assume it is excluded because it earns no interest, which is not the case. The other exclusions worth remembering are deposits of foreign governments, deposits of the Central and State Governments, deposits of a State Land Development Bank with the State co-operative bank, any amount due on a deposit received outside India, and any deposit the Corporation exempts with the prior approval of the Reserve Bank of India.

The correct answer is B, 1962. The Deposit Insurance Corporation, created under the Deposit Insurance Act, 1961, began functioning on 1 January 1962, and that is the date from which bank deposits in India have been insured. The step followed a spell of bank failures at the end of the 1950s, the collapse of the Palai Central Bank in 1960 being the one usually named as the immediate push. Option A is wrong because 1949 is the year of the Banking Companies Act, later renamed the Banking Regulation Act, and also the year the Reserve Bank of India was nationalised. Option C is wrong because 1969 is the year fourteen major commercial banks were nationalised. Option D is wrong because 1978 is when the Deposit Insurance Corporation merged with the Credit Guarantee Corporation to form the present Corporation. Every wrong option here is a genuine banking milestone, which is precisely why the question works.

The correct answer is C, twelve paise. With effect from 1 April 2020 the Corporation charges twelve paise a year on every hundred rupees of a bank assessable deposits. Option B is wrong because ten paise was the rate until 31 March 2020, when it was raised in step with the larger cover. Option A is wrong because five paise is not a rate the Corporation has charged in recent decades. Option D is wrong because fifteen paise is not what is charged but the maximum the Act permits, and the difference between the two is tested directly in banking papers. Two allied points belong with this fact. The premium is paid by the bank and never by the depositor, and it is payable half yearly in advance, worked out on the assessable deposits of the preceding half year. A candidate who can hold only one number should hold this pair: twelve paise charged against a fifteen paise ceiling.

The correct answer is B, fifteen paise. The Act allows the Corporation, with the previous approval of the Reserve Bank of India, to raise the premium only as far as fifteen paise a year for every hundred rupees of assessable deposits, so fifteen paise is the statutory ceiling. Option A is wrong because twelve paise is the rate actually being charged since 1 April 2020, not the cap, and this is the very pair the question is built on. Option C and option D are wrong because no higher ceiling exists in the law; lifting the cap would need Parliament to amend the Act. The practical reading for a candidate is that the Corporation has three paise of headroom before it must go back to Parliament. Keep the two figures together in memory, twelve paise charged and fifteen paise permitted, both measured for each hundred rupees of assessable deposits in a year.

The correct answer is C, 90 days. The Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 created an interim payment so that the depositors of a bank placed under all inclusive directions need not wait for the bank to be wound up. The bank must give the Corporation a list of claims within forty five days of the direction, and the Corporation must then pay eligible depositors up to the insured limit within the next forty five days, which makes ninety days in all. Option B is wrong because forty five days is only the first half of that window, the time allowed for the list of claims. Option A is wrong because thirty days is not a period fixed anywhere in the scheme. Option D is wrong because one hundred and eighty days was never prescribed. Before this amendment, a depositor of a bank under a moratorium could be shut out of their own money for years, and that is the real point behind the question.

The correct answer is C, per depositor per bank. Every account a depositor holds in the same right and the same capacity in one bank is added together, across all its branches, and the five lakh rupee limit is then applied to that total of principal and interest. Option A is wrong because the cover is not granted afresh for each account; three fixed deposits in one bank share a single cover. Option B is wrong for the same reason, and it is the commonest error of all, since shifting money between branches of the same bank gains a depositor nothing. Option D is wrong because the family is not the unit of cover, although deposits genuinely held in a different capacity, say one account in a person own name and another held as the guardian of a minor, count as separate holdings and each get their own cover. The sound lesson is that spreading large savings across different banks, not different branches, multiplies the protection.

The correct answer is C, primary co-operative societies. Insurance with the Corporation is compulsory for all commercial banks, including the branches of foreign banks working in India, for local area banks and regional rural banks, for payments banks and small finance banks, and for state, central and primary urban co-operative banks. Primary co-operative societies are not banks within the meaning of the Act, so they are not registered, and that is why the depositors of a credit society enjoy no deposit insurance at all. Option A is wrong because payments banks are registered and their deposits are insured. Option B is wrong because regional rural banks are insured just like other commercial banks. Option D is wrong because small finance banks are registered too. The distinction matters in real life, since a saver who hands money to an unregistered society sits outside the safety net, and papers test it as a which of the following is not covered question.

The correct answer is B, Palai Central Bank. The failure of the Palai Central Bank of Kerala in 1960, coming on top of trouble at other small banks, badly shook public confidence and pushed Parliament into passing the Deposit Insurance Act, 1961, under which cover began on 1 January 1962. Option A is wrong because the Imperial Bank of India never failed; it was taken over by the State and became the State Bank of India in 1955. Option C is wrong because the Bank of Hindustan, set up in 1770 and usually called the first bank in India, wound up in 1832, more than a century before the Act. Option D is wrong because the Presidency Bank of Bengal, founded in 1806 as the Bank of Calcutta, was one of the three presidency banks that were amalgamated in 1921 into the Imperial Bank of India. The lesson examiners want is that deposit insurance in India was a response to real bank failures.