Does the bank have unique sources to save them? Is that bank never paying debts? The answer to your questions answered through this article. They have more problems than the bank depositors. To solve their problem, the one launched in all countries is the bank deposit insurance scheme. Without wasting much of your time, let’s get to the scheme.
How Does The Bank Save Themselves From Debts?
Banks are the major source for the nation in lending money. They are the debts. We borrow debts from the banks, and the process after that, if you don’t pay on time, they seize property. This is the basic process. But what happens when banks don’t pay debts? How do they save them? The deposit insurance scheme is the method to protect the bank depositors in full or in part when a bank is unable to pay their losses in due time.
Let’s take an example:
You borrow a pen from your friend. He gives you a condition that you should give as soon as possible. Due to some reason, you lose the pen. Then you are with an option to buy him an expensive pen. So, you save money. The pen you borrow is the money borrowed by bank depositors. The loss of the pen is the bank’s inability to pay the debts. The saving of money is the insurance money you pay for debts. Thus, the insurance scheme protects the bank from many aspects of being unstable.
The Goal Of Bank Deposit Insurance Scheme
A deposit insurance scheme aims to bring stability to the system, which is achieved by depositor protection.
The Need For Bank Deposit Insurance Scheme (DIS)
The need for the DIS and DICGC is vast. There should be a certain need to organize this scheme. These include, in particular:
The deposit insurance scheme helps in the financial aspects of the bank. The main aspect is that functioning and ability to meet the depositor’s need to assess credibility and security for money.
ii. Equal Competition
The deposit insurance scheme must include all the contributions made in support. This leads to fair competition.
iii. Cradle For Orientation
The cost- due- to cause ideology should be organized so that the insured institution can claim in case of an emergency. The bigger the amount claimed, the higher is money to the fund.
Debit Insurance And Credit Guarantee Corporation (DICGC)
DICGC implemented this scheme on 15th July 1978. The DICGC insures all bank deposits. The type may be of saving, fixed (or) current. The amount for the recurring bank is up to Rs. Five lakhs. Following are the deposits that are not included in DICGC:
- Any deposits of the abroad government are not taken.
- Central and state government deposits are not included.
- Deposits from inter banks.
- Deposits of developmental banks.
- Any debt that is present outside the country
Greatest Deposit Amount Insured By DICGC
The DICGC insures principal and interest up to the most amount of five lakhs. For example, if your account has an amount of 4, 95,000. As a bonus, you get 4,000 extras to make it 4 99,000. The 4,000 is the accrued interest. Accrued interest is due for money that is not paid to the borrower and not received by the lender. To make it clearer, when the pen you borrow is not returned and when he does not receive the pen. The expensive pen you buy for him is the accrued interest.
Deposit Insurance Coverage In India
Deposit insurance in India is like any other insurance policy. The current limit for a bank in different branches is one lakh. The statistics of SBI (State Bank of India) says that India is the lowest in deposit coverage. While in Brazil and Russia, it is forty-two lakhs and twelve lakhs.
Administration And Funding Of The Deposit Insurance Scheme
Funds are taken when the bank has failed. Banks are assessed, and they contribute at this time. Certain branches of the bank should pay the money to the clients once the funding has failed.
Banks Which Are Not Included Under DICGC
Certain developmental and cooperative banks are not covered under the deposit and insurance scheme.
Here the deposits of the foreign government, central and state government, deposit from state land development bank and inter states are not insured by DICGC.
Benefits Of The Deposit Insurance Scheme
They prevent every people from losing money. The bank’s main aim is to ensure the deposit money and help the bank escape from debts and prevent people from standing in long queues to get their money.
Maximum Deposit Amount Insured By DICGC
Each depositor gets insurance upto a maximum of Rs 5,00,000 for both principal and interest amount. It should be held by him on the date of liquidation/cancellation of bank’s licence or on the date on which the scheme of amalgamation/merger/reconstruction comes into force.
Frequently Asked Questions
1. How does an insurance scheme save bank depositors?
2. India has the least amount of deposit amount gathered. Explain with a proper reason.
3. Guna is a bank depositor. He doesn’t know about the bank deposit insurance scheme. Suggest some ways so that he can benefit from this insurance scheme.
The main thing is that trust you should have towards the bank. So, Guna should choose a trusted bank.
4. How will you calculate the DI for different ownership?
5. Ropak has prior knowledge of the bank deposit insurance scheme. But still, he has a problem with that. His insures of principal and interest is less than 5 lakhs. Can you help him out?
6. Suggest some ways to spread about the bank deposit insurance scheme?
By creating awareness through ads.
By digital marketing.
7. The deposit insurance scheme benefits most depositors. Explain the benefits experienced by them.
It brings investment-related profits to the bank.
Depositors can have easy accessibility over their money.
8. What are the disadvantages of not having an bank deposit insurance scheme?
The protection of depositors is not possible.
9. Subash didn’t read about the guidelines of DICGC. So, find a way to solve the problem of the deposit insurance scheme.
The bank deposit insurance scheme usually helps the bank depositors and thereby also protects the bank from an economic crisis. The insurance scheme also helps out financially and brings safety to bankers. Therefore, I conclude by saying that insurance policies that are not encouraged in countries must have awareness about this scheme and help in the country’s growth.