Deposits with which one of the following are not covered by DICGC insurance?

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.