The Deposit Insurance and Credit Guarantee Corporation Act, 1961

Banking Law · Unit II · Topic 7 of 21 · 6 min read

Why deposit insurance was introduced, how the DICGC is established and capitalised, which banks are registered as insured banks, what counts as a deposit, the extent and timing of the Corporation's liability to depositors including the 90-day interim payment of 2021, and the triangular relation of insured bank, DICGC and RBI.

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On this page

1. Objects and reasons
2. Establishment, capital and management
3. Registration of insured banks
4. What is insured
5. Liability of the DICGC to depositors
6. Credit guarantee functions
7. Insured banks, DICGC and the RBI
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. Three numbers and three sections carry the answer: cover of ₹5 lakh per depositor per bank (s.16 read with the notification of 2020); payment within two months of the liquidator's list on winding up (s.17); and an interim payment within ninety days where a bank is placed under restrictions (s.18A, inserted in 2021).

1. Objects and reasons

The failures of the Laxmi Bank and the Palai Central Bank in 1960 showed how a single bank collapse could ruin small depositors and shake confidence in the whole system. The Deposit Insurance Corporation Act, 1961 (47 of 1961) set up a corporation to insure bank deposits, and the Corporation began work on 1 January 1962. In 1978 it was merged with the Credit Guarantee Corporation of India and renamed the Deposit Insurance and Credit Guarantee Corporation (DICGC), and the Act took its present name.

The objects:

to protect small depositors, who cannot assess the soundness of a bank, against loss of their savings;
to maintain public confidence and so prevent runs on banks;
to make a bank failure an orderly process, with quick payment to depositors; and
through the credit guarantee function, to encourage lending to small borrowers.

2. Establishment, capital and management

Establishment (s.3). A body corporate with perpetual succession and a common seal, with its head office at Mumbai.
Capital (s.4). Authorised capital of ₹1 crore, which the Central Government may raise in consultation with the RBI up to ₹50 crore. The issued capital is fully paid up and allotted to the Reserve Bank, so the DICGC is a wholly owned subsidiary of the RBI.
Management (ss.5, 6). A Board of directors chaired by the RBI Governor or a Deputy Governor nominated by the RBI, with another RBI officer, a Central Government official, and five directors nominated by the Government in consultation with the RBI for their knowledge of banking, insurance, commerce, industry, finance and related fields.
Funds (ss.22–24). Separate Deposit Insurance Fund, Credit Guarantee Fund and General Fund. The Deposit Insurance Fund is built from premia and is used only to pay depositors. The RBI may advance money to the Corporation (s.26).

3. Registration of insured banks

Registration is compulsory and automatic, not a contract.

Banking companies existing at commencement (s.10) and every new banking company on getting a licence under s.22 of the Banking Regulation Act (s.11).
Regional Rural Banks (s.11A) and eligible co-operative banks (s.13A), the latter added in 1968 as State laws came into line with RBI control. All commercial banks, including foreign banks' branches in India, local area banks, small finance banks and payments banks, are covered. Primary agricultural credit societies are not.
Cancellation (ss.13, 13C). Registration stands cancelled if the bank is prohibited from receiving fresh deposits, loses its licence, is wound up, transfers all its deposits, or ceases to be a banking company. Deposits up to the date of cancellation remain insured (proviso to s.16(1)).
Premium (s.15). Each insured bank pays a premium on its assessable deposits at the rate the Corporation notifies with RBI approval. The cost falls on the bank, not the depositor. Registration can be cancelled for non-payment (s.15A).

4. What is insured

Deposit (s.2(g)) means the aggregate of unpaid balances due to a depositor in all his accounts, by whatever name called, and includes credit balances in a cash credit account. So savings, current, fixed and recurring deposits are all covered, with interest. Excluded are deposits of foreign governments, the Central and State Governments, and inter-bank deposits.

The limit: the second proviso to s.16(1) fixed the original cover at ₹1,500 per depositor, and the third proviso lets the Corporation raise it, having regard to its financial position, with the previous approval of the Central Government. It was raised in steps and, from 4 February 2020, stands at ₹5 lakh, principal and interest together. The cover is per depositor per bank, and for deposits held “in the same capacity and in the same right”. A person with a sole account and a joint account in the same bank is insured separately for each, because the capacity differs; a person with five accounts in his own name in one bank is insured only once.

Under s.16(3) the amount payable is computed after set-off: if the depositor owes the bank money, the debt is deducted first.

5. Liability of the DICGC to depositors

Winding up (ss.16, 17). Where an insured bank is ordered to be wound up, the Corporation becomes liable to pay every depositor the amount due on his deposit, up to the limit. The liquidator must send the Corporation a list of depositors within three months of taking charge, and the Corporation must pay within two months of receiving it, directly, through an agency, or through the liquidator.

Reconstruction or amalgamation (s.18). Where a scheme pays a depositor less than his original deposit and less than the insured amount, the Corporation pays him the difference, measured against whichever of the two is lower (s.16(2), paid in the manner laid down in s.18).

Interim payment (s.18A). This was added by the DICGC (Amendment) Act, 2021 (30 of 2021), from 1 September 2021, after depositors of banks placed under moratorium waited years for money. Where a direction, prohibition, order or scheme under the Banking Regulation Act restricts depositors from accessing their deposits, the Corporation becomes liable on the day it takes effect to pay each depositor the insured amount. The bank must send the list within 45 days, the Corporation verifies it within 30 days, and pays within 15 days after verification: the whole process must not exceed ninety days.

Recovery (s.21). Having paid, the Corporation stands in the depositors' place: the liquidator or transferee bank must repay it out of the bank's assets, and s.43A of the Banking Regulation Act gives insured deposits priority in winding up. Unclaimed amounts are kept for the depositors (s.20).

6. Credit guarantee functions

Chapter IIIA (s.21A) allows the Corporation to guarantee credit facilities given by credit institutions to small borrowers and to indemnify the institutions against loss. In practice credit guarantee is now done by other schemes, such as the Credit Guarantee Fund Trust for Micro and Small Enterprises, and the DICGC's work is almost entirely deposit insurance.

7. Insured banks, DICGC and the RBI

The RBI owns the Corporation's capital, nominates its chairman and may advance funds.
Insured banks must send returns to the Corporation (s.34) and give it access to their records (s.35).
The Corporation cannot inspect a bank itself; it may ask the RBI to inspect, and the RBI shares its reports (ss.36–38).
The RBI's regulatory action triggers the Corporation's liability: an order under ss.35A or 45 of the Banking Regulation Act triggers s.18A, a winding up on the RBI's application triggers s.16.
Where a State co-operative law prevents the RBI from requiring winding up, a co-operative bank is not eligible for registration, which is why s.13D lets the RBI require winding up of co-operative banks.

Trap. Cover is per bank, not per branch and not per account. Two accounts at two branches of the same bank are one bank for this purpose. Two accounts in two different banks are separately insured up to ₹5 lakh each.

How this is examined

Frequently. Essay: “Explain the salient features of the Deposit Insurance Corporation Act, 1961” (June 2025). Short notes: “Deposit Insurance Corporation” (January 2026, February 2025), “Liability of Deposit Insurance Corporation to depositors” (August 2024). For the liability note, give s.2(g), the ₹5 lakh limit with “same capacity, same right”, set-off, the winding-up timetable under s.17, and s.18A with its ninety days.

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