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Abstract

The concept of insuring deposits kept with banks received attention for the first time in the year 1948 after the banking crisis in Bengal . The issue came up for reconsideration in the year 1949, but was held in abeyance till the Reserve Bank ensured adequate arrangements for inspection of banks.

Subsequently, in the year 1950, the Rural Banking Enquiry Committee supported the concept. Serious thought to insuring deposits was, however, given by the Reserve Bank and the Central Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in Parliament on August 21, 1961 . After it was passed by Parliament, the Bill got the assent of the President on December 7, 1961 and the Deposit Insurance Act, 1961 came into force on January 1, 1962 . Deposit Insurance Scheme was initially extended to functioning commercial banks only. This included the State Bank of India and its subsidiaries, other commercial banks and the branches of the foreign banks operating in India .

With the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was required to register "eligible cooperative banks" as insured banks under the provisions of Section 13 A of the DICGC Act. The Government of India, in consultation with the Reserve Bank, introduced a credit guarantee scheme in July 1960. The Reserve Bank was entrusted with the administration of the scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organization (CGO) for guaranteeing the advances granted by banks and other credit institutions to small scale industries. The Reserve Bank operated the scheme up to March 31, 1981 . The Reserve Bank also promoted a public limited company on January 14, 1971 , named the Credit Guarantee Corporation of India Ltd. (CGCI).

The credit guarantee schemes introduced by the Credit Guarantee Corporation of India Ltd., aimed at encouraging the commercial banks to cater to the credit needs of the hitherto neglected sectors, particularly the weaker sections of the society engaged in non-industrial activities, by providing guarantee cover to the loans and advances granted by the credit institutions to small and needy borrowers covered under the priority sector as defined by the RBI. With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (DIC & CGCI) were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. Consequently, the title of Deposit Insurance Act, 1961 was changed to 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961'. Effective from April 1, 1981 , the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India's credit guarantee scheme. With effect from April 1, 1989 , guarantee cover was extended to the entire priority sector advances.

Objective of the Project

The objective of the project can be summarized as follows-

• i. To understand the role of Urban co-operative bank

• ii. To understand the basic concept of deposit insurance in bank and related issues

A Descriptive Research has been carried out wherein data has been extensively gathered from various Sources pertaining to Deposit insurance. The data was gathered by secondary sources mention below.

Secondary data has been collected from RBI's website for information on Indian Banking Industry particularly cooperative banks. DICGC website was also source of secondary data for method of premium calculation & claim Settlement.Secondary data has been collected by visiting the ledgers of the bank, Statutory Audit report of the Bank for the Year 2007 & 2008

Type Of Deposits Covered

The Corporation insures all bank deposits, such as savings, fixed, current, recurring, etc. except the deposits of (i) foreign governments; (ii) Central/State Governments; (iii)State Land Development Banks with the State co-operative banks; as also (iv) inter-bank deposits (v) deposits received outside India and (vi) deposit specifically exempted by the Corporation with the previous approval of the Reserve Bank.

INSURANCE PREMIUM

The Corporation collects insurance premium from insured banks for administration of the deposit insurance system. The premium to be paid by the insured banks is computed on the basis of their assessable deposits. Insured banks pay advance insurance premium to the Corporation annually, within two months from the beginning of each financial year based on its deposits as at the end of previous half year. The premium paid by the insured banks to the Corporation is required to be borne by the banks themselves and is not passed on to the depositors.

For delay in payment of premium, an insured bank is liable to pay interest at the rate of 8 per cent above the Bank Rate on the default amount from the beginning of the relevant half-year till the date of payment.

Settlement of Claims

1. The Reserve Bank cancels the licence / rejects the application for licence of a bank and recommends its liquidation to the concerned

Registrar of Co-operative Societies (RCS) with endorsement to the DICGC

2. The RCS appoints a Liquidator for the liquidated bank with endorsement to the DICGC.

3. The DICGC cancels the registration of the bank as an insured bank and issues guidelines for submission of the claim list by the liquidator within 3 months and requests Reserve Bank to appoint an external auditor [Chartered Accountant, (C.A)] for on-site verification of the list.

4. The Reserve Bank appoints C.A. and the DICGC conducts briefing and orientation session for C.A. to check the claim list.

5. The Liquidator submits the claim list for payment to the depositors (both hard and soft forms).

6. The external auditors ( C.A. ) submit their report on the aspects of the claim list.

7. The claim list is computer-processed and payment list is generated.

8. Consolidated payment is released to the Liquidator and further information sought on incomplete/doubtful claims. The release of claims is announced through the website of the Corporation.

9. The liquidator releases the payment to the depositors.

Reference :

Source: Annual report of DICGC 2008-09
www.rbi.org.in
www.digc.org.in
www.bankrate.com