DICGC Act effective from September 1, Stressed bank depositors set to get back funds after 90 days

Updated on 30 August 2021

The Government has notified September 1, 2021, as the date on which the provisions of the Act shall come into force, according to a gazette notification dated August 27, 2021. “In exercise of the powers conferred by sub-section (2) of section 1 of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 (30 of 2021), the Central Government hereby appoints the 1st day of September 2021, as the date on which the provisions of the said Act shall come into force,” it said. Accordingly, Depositors of stressed banks like Punjab & Maharashtra Cooperative (PMC) Bank are set to get their funds 90 days from the effective date is November 30, 2021

A sub-section inserted to Section 15 of the DICGC Act 2021 enables the corporation to increase the ceiling on the amount of premium paid by banks to DICGC to 15 paise per annum for Rs 100 worth deposits, with the prior approval of the Reserve Bank of India (RBI). Currently, it charges a flat rate premium of 12 paise per Rs 100 deposit. Following the amendment to the act, the corporation moves away from a one-size-fits-all approach, and it can usher in a differential premium system (DPS) for banks, based on their risk profile, following an amendment to the DICGC Act.

The previous clause under Section 15(1) Act was “…Provided that the premium payable by an insured bank for any period shall not exceed fifteen paise per annum for every hundred rupees of the total amount of the deposits in that bank at the end of that period…”. After the amendment the above section reads as under:

“The Corporation may, having regard to its financial position and to the interests of the banking system of the country as a whole, and with the previous approval of the Reserve Bank of India (RBI), from time to time, raise the aforesaid limit of fifteen paisa per annum for every hundred rupees of the total amount of the deposits in that bank.”

Thus, the amended DICGC Act replaces the “shall not exceed fifteen paise per annum for every hundred rupees” clause with “raise the aforesaid limit of fifteen paise per annum for every hundred rupees”.

The entire process, from the time a bank is placed under a moratorium to depositors receiving the insured amount, should not exceed 90 days, according to the DICGC Bill, 2021.

Once a stressed bank is put on a moratorium, DICGC will be liable to pay depositors an insured amount of Rs 5 lakh. A list showing the outstanding deposits of each depositor of the insured bank will have to be furnished by the lender within 45 days.

The DICGC, within 30 days of receiving the list will have to verify the authenticity of the claims made and ascertain the willingness of each depositor to receive the amount due to him, out of his deposit in the insured bank. The entire process, from the time a bank is placed under a moratorium to depositors receiving the insured amount, should not exceed 90 days, according to the DICGC Bill, 2021.

According to Section 21(2)(a) of the DICGC Act, the liquidator is bound to repay the Corporation for the amount paid by it or provided for in case the depositors are not traceable. The amended act provides flexibility to the liquidator to seek deferment for such repayment to the Corporation for the period as may be decided by the board of directors of DICGC. The amendment helps the liquidator draw up claims and secure liquid funds while withholding repayment to DICGC for a permitted time. In case of any delay beyond the time stipulated by the DICGC Board, the Corporation may charge penal interest at a maximum rate of 2 percent above the repo rate per annum, for the amount to be repaid by the liquidator to the Corporation. There was no mechanism to impose a penalty under the earlier law in case of a default in repayment by the liquidator.

The Deposit Insurance and Credit Guarantee Corporation (DICGC) have reviewed its policy for settlement of claims of joint account holders in the event of liquidation of a bank. As per the revised policy the deposits held in two separate joint accounts in the combination of say “A” and “B” and “B” and “A”; will now be treated as two separate accounts, and each category of the joint account will be eligible for a claim up to Rs. Five lakh. Similarly, a joint account of “A”, “B” and “C” will be treated as different from the joint account of “A”, “B” for the purpose of settlement of claims and claims in each category account will be paid up to Rs Five Lakh. The policy has been revised in response to representations received from affected depositors. Often husband and wife having an independent source of income maintained joint accounts for operational convenience. The revised policy is expected to bring relief to depositors who maintain such accounts.

The flat-rate premium had been upped from 10 paise to 12 paise per Rs100 of assessable deposits since April 1, 2020, to mitigate the impact of the hike in insurance coverage on the corporation’s Deposit Insurance Fund (DIF).

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