Deposit Insurance Corporation Modifies Rules for Depositor Payouts and Bank Repayment Deferrals

The Deposit Insurance and Credit Guarantee Corporation (DICGC) has issued new regulations, titled the Deposit Insurance and Credit Guarantee Corporation General (Amendment) Regulations, 2021, which introduce significant changes to the procedures for depositor claims and the repayment obligations of insured banks. These regulations, published on September 30, 2021, were made by the Board of the DICGC with the prior approval of the Reserve Bank of India, exercising powers conferred by Sub-section (1) and clause (j) of Sub-section (2) of Section 50 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. The amendments modify the existing Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961, referred to as the "Principal Regulations," and are deemed to have come into force retrospectively from September 22, 2021.

The amendments primarily focus on formalizing the process for insured banks to submit details of depositors willing to receive insured amounts and granting the Corporation discretion over repayment timelines from financially distressed banks. A new Regulation 21A has been inserted, mandating that insured banks, when furnishing lists and certifications under sub-section (2) of section 18A (which pertains to interim payments to depositors), must submit a specified form containing the names and account details of depositors who have affirmed their willingness to receive the insured amount. This form requires a declaration from the chief executive officer or person in charge, attesting to the correctness of the contents and confirming the availability of signed depositor declarations, along with an undertaking to preserve and submit these declarations to the Corporation within specified timelines. The legislation provided: “The insured bank, while furnishing the list and the certification under sub-section (2) of section 18A, shall submit in such form as specified by the Corporation, the name and account details of depositors who have affirmed their willingness to receive the insured amount in respect of their deposit in the insured bank, and that form shall also contain a declaration signed by the chief executive officer/the person in charge as to the correctness of the contents thereof along with a confirmation as to availability of the declarations signed and submitted by the depositors, and an undertaking to preserve and submit the said declarations to the Corporation, within such time and in such manner as specified by the Corporation.” Furthermore, insured banks are now required to obtain express declarations of willingness from depositors in a Corporation-specified form, which must include the depositor's signature and a certification from the chief executive officer or person in charge regarding its accuracy. If a depositor's willingness is received after the initial submission but within the period specified in the first proviso to sub-section (4) of section 18A, the bank must submit these details in the same format. The claim settlement procedure used for claims made by liquidators under section 17 and transferee or insured banks under section 18 will now apply, with necessary modifications (mutatis mutandis), to verify the genuineness of claims made under section 18A(2) and the authenticity of depositor willingness forms and declarations.

Additionally, the regulations introduce Regulation 22A, which empowers the Corporation to defer or vary the time limit for receiving repayments due from an insured bank or a transferee bank. This can occur if the Corporation is satisfied with the bank's financial position and assesses that it is not capable of making timely repayment, considering factors such as expected cash flows, capital infusion, liquidity, business profits, asset sales, or restructuring. The Board's decision on such deferment or variation is binding on the bank. Until the repayment is made to the Corporation, the insured bank or transferee bank is prohibited from discharging any liabilities other than those specifically permitted by the Board's decision. For the purpose of assessing the bank's financial position and repayment capability, the Corporation may periodically request records, statements, or information, which the bank is obligated to provide. These amendments aim to enhance the efficiency and integrity of the deposit insurance claim process, ensuring clear consent and verification from depositors while also providing the DICGC with greater flexibility to manage the financial recovery of distressed banks. The changes address the need for a robust framework for handling depositor claims, particularly in situations involving banks under moratorium or reconstruction, and introduce a mechanism for the Corporation to exercise discretion in repayment schedules, balancing its own financial interests with the broader goal of banking sector stability.

Keywords: Deposit Insurance, Credit Guarantee, DICGC, Banking Regulations, Depositor Claims, Bank Repayment, Financial Stability, Reserve Bank of India, DICGC Act 1961, Amendment Regulations 2021

Geo Tags: India, Maharashtra District: Not Applicable