Page 49 - Banking Finance May 2023

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and its policies and operations have evolved over time to Recovery of funds: After settling the claims, DICGC takes
address changing economic and financial conditions. One of necessary steps for recovering the amount paid to the
the key features of the FDIC's deposit insurance system is risk- depositors from the assets of the failed bank. In the last 10
based premiums. Banks that are deemed to have higher risks years, DICGC has recovered Rs. 12,153 crore (about $1.6
are required to pay higher premiums, which incentivizes them billion) from the assets of failed banks.
to adopt more conservative lending practices. The FDIC also
engages in effective communication with stakeholders to Compared to FDIC in the US, DICGC provides lower
enhance transparency and accountability. It publishes regular insurance coverage per depositor and has a smaller number
reports on bank performance and provides updates on its of insured banks. However, DICGC has a similar mandate as
policies and operations. FDIC to protect depositors and ensure stability in the banking
system. DICGC has been successful in settling claims of
The DICGC, on the other hand, was established in 1978 and depositors in a timely manner and recovering funds from
has a different set of policies and operations. The DICGC failed banks. There have been no major bank failures in India
provides insurance cover of up to Rs. 5 lakh per depositor in recent years, which can be attributed in part to the
per bank. Unlike the FDIC, the DICGC does not have risk- presence of deposit insurance provided by DICGC.
based premiums, and all banks pay the same premium
regardless of their risk profile. The DICGC also does not A comparative study:
engage in effective communication with stakeholders, which FDIC (Federal Deposit Insurance Corporation) and DICGC
can lead to a lack of transparency and accountability. (Deposit Insurance and Credit Guarantee Corporation) are
two organizations that provide deposit insurance to protect
Role Played by DICGC: depositors in case of bank failure. Here is a comparison of
the two:
DICGC provides insurance cover to deposits in all commercial
Coverage Limit: FDIC covers up to $250,000 per depositor,
banks, local area banks, regional rural banks, and
per bank, per ownership category, while DICGC covers up
cooperative banks.
to Rs 5 lakh per depositor, per bank, per ownership category.
Here are some key statistics and data on Coverage Types: FDIC covers deposits in banks, savings
associations, and other financial institutions insured by the
DICGC's work:
FDIC, while DICGC covers deposits in banks and cooperative
Deposit insurance cover: DICGC provides insurance cover
banks in India.
to each depositor up to a maximum of Rs. 5 lakh (about
$6,700) per bank, per depositor, for both principal and
Type of Insurance: FDIC is a federal agency that provides
interest amount held by the depositor in the same right and
deposit insurance to banks and savings institutions in the
same capacity as on the date of liquidation/cancellation of
United States, while DICGC is a subsidiary of the Reserve
bank's licence or the date on which the scheme of
Bank of India and provides deposit insurance to banks in
amalgamation/merger/reconstruction comes into force.
India.
Number of insured banks: As of March 2020, DICGC
Membership: FDIC requires all banks and savings institutions
provided deposit insurance cover to a total of 2,098 banks
in the United States to be insured by the FDIC, while DICGC
in India, including 157 commercial banks, 1,562 cooperative
provides voluntary insurance to banks in India.
banks, 43 regional rural banks, and 336 local area banks.
Funding: FDIC is funded by insurance premiums paid by the
Claims settlement: DICGC settles claims in the event of a banks it insures, while DICGC is funded by the insurance
bank failure within a period of two months from the date of premiums paid by the banks it insures and by contributions
receipt of claim list from the liquidator of the failed bank.
from the Reserve Bank of India.
In the last 10 years, DICGC has settled claims worth Rs.
6,390 crore (about $856 million) to depositors of failed Governing Body: FDIC is governed by a board of directors
banks. appointed by the President of the United States, while

46 | 2023 | MAY | BANKING FINANCE