Who bears the cost of the deposit insurance premium paid to the DICGC?

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 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.