Introduction:
The financial stability of a country's banking industry is crucial for economic development. Deposit insurance plays a key role in maintaining financial stability by protecting depositors in case of bank failures. The FDIC in the United States and the DICGC in India are two prominent deposit insurance corporations that protect the deposits of bank customers. While both institutions have similar objectives, there are notable differences in their policies and operations. This paper aims to explore the lessons DICGC can learn from FDIC and how it can be useful for the Indian banking industry and its customers.
Literature Review:
The FDIC has been providing deposit insurance since 1933, and its policies and operations have evolved over time to address changing economic and financial conditions. One of the key features of the FDIC's deposit insurance system is risk-based premiums. Banks that are deemed to have higher risks are required to pay higher premiums, which incentivizes them to adopt more conservative lending practices. The FDIC also engages in effective communication with stakeholders to enhance transparency and accountability. It publishes regular reports on bank performance and provides updates on its policies and operations.
The DICGC, on the other hand, was established in 1978 and has a different set of policies and operations. The DICGC provides insurance cover of up to Rs. 5 lakh per depositor per bank. Unlike the FDIC, the DICGC does not have riskbased premiums, and all banks pay the same premium regardless of their risk profile. The DICGC also does not engage in effective communication with stakeholders, which can lead to a lack of transparency and accountability.
Role Played by DICGC:
DICGC provides insurance cover to deposits in all commercial banks, local area banks, regional rural banks, and cooperative banks.
This story is from the May 2023 edition of BANKING FINANCE.
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This story is from the May 2023 edition of BANKING FINANCE.
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