The Deposit Insurance and Credit Guarantee Corporation Act, 1961

Summary of the Deposit Insurance and Credit Guarantee Corporation Act, 1961
Key Components
1. Establishment & Management
• Name: Deposit Insurance and Credit Guarantee Corporation
• Governance: Board of Directors with representatives from the Reserve Bank of India (RBI), Central Government, and experts.
• Operations: Head Office in Mumbai with potential branches.
2. Deposit Insurance
• Registration: Mandatory for banking companies (existing, new, defunct) and co-operative banks.
• Premium: Insured banks pay premiums; provisions for default and interest.
• Liability: Corporation pays up to a specified limit per depositor in case of bank failure, with adjustable limits.
• Special Provisions:
• (a): Extension of payment liability up to 90 days for amalgamation, compromise, or reconstruction schemes.
• (b): No liability if RBI removes payment restrictions and the bank can pay depositors without restrictions.
3. Credit Guarantee Functions
• Role: Guarantees credit facilities and indemnifies credit institutions on behalf of the Central Government.
4. Financial Provisions
• Funds:
• Deposit Insurance Fund: Premiums, receipts, and investments.
• Credit Guarantee Fund: Transferred assets, fees, and investments.
• General Fund: Other receipts for operational expenses.
• Investments: Primarily in Central Government securities and RBI deposits.
5. Operational & Regulatory
• Staff Utilization: Can utilize RBI staff.
• Reporting: Annual accounts and reports to RBI and Central Government.
• Regulations & Penalties: Board makes regulations with RBI approval; penalties for false statements and non-compliance.
6. Miscellaneous
• Liquidation: Only by Central Government order.
• Tax Exemptions & Reserves: As specified, with a focus on reserve funds for liabilities.
• Amendments: Reflects changes in management, liability, and operational aspects over time.

Legislative History:

The Deposit Insurance and Credit Guarantee Corporation Act, 1961

● Act Title - The Deposit Insurance and Credit Guarantee Corporation Act, 1961 (originally enacted as The Deposit Insurance Corporation Act, 1961)

● Act Number / Year - 47 of 1961

● Act ID (India Code) - 196147

● Presidential Assent Date - December 7, 1961

● Enforcement Date - January 1, 1962

● Nodal Ministry - Ministry of Finance

Precedent & Historical Rationale

● Protection of Depositors and Banking System Stability - Enacted following high-profile banking distress in 1960 (specifically the collapse of Laxmi Bank and Palai Central Bank) to establish a statutory safety net protecting small depositors against bank failures.

● Establishment of Statutory Insurance and Credit Guarantee Entity - Formulated to establish the Deposit Insurance Corporation (later renamed DICGC after merging with the Credit Guarantee Corporation of India in 1978) as a wholly owned subsidiary of the Reserve Bank of India to provide deposit insurance and guarantee credit facilities to priority sectors.

Parliamentary Trajectory & Enactment

● Formulation - Introduced by the Ministry of Finance in consultation with the Reserve Bank of India as the Deposit Insurance Corporation Bill, 1961, to institutionalize bank deposit insurance.

● Parliamentary Passage - Debated and passed by both Houses of Parliament (Second Lok Sabha and Rajya Sabha) during the August–December session of 1961.

● Presidential Assent - Received Presidential Assent on December 7, 1961.

● Enforcement - Enforced on January 1, 1962.

Source - Official Record of Parliament, India Code, and Ministry of Finance.