New India Co-operative Bank Crisis and DICGC’s Role

February 18, 2025

The New India Co-operative Bank in Mumbai faces turmoil following allegations of a Rs 122 crore fraud. The Reserve Bank of India (RBI) has imposed strict restrictions on the bank. These measures include barring the bank from granting new loans, renewing existing advances, and accepting new deposits. Furthermore, depositors cannot withdraw funds for six months from February 13, 2025. Amid this crisis, the Deposit Insurance and Credit Guarantee Corporation (DICGC) emerges as a vital safety net for depositors.

What is the DICGC?

The DICGC is a subsidiary of the RBI.
It was established to protect depositors in case of bank failures.
The DICGC insures deposits across all banks. This insurance allows depositors to recover funds up to a specified limit if their bank faces insolvency or financial distress.
As of now, depositors can claim up to Rs 5 lakh from the DICGC.

Changes in Deposit Insurance Coverage

Before April 2021, depositors could only claim their insured amount if their bank entered liquidation.
This left many depositors waiting indefinitely during a moratorium.
However, the 2021 Budget introduced amendments to the DICGC Act.
These changes allow depositors immediate access to insurance coverage up to Rs 5 lakh, even if their bank is under moratorium but not yet liquidated.
This reform provides crucial protection for depositors’ funds, including both principal and interest.

DICGC’s Role in the Current Crisis

In the case of the New India Co-operative Bank, the DICGC plays a critical role. Around 90 percent of the bank’s 1.3 lakh depositors are fully covered by this insurance scheme. Despite the withdrawal restrictions, depositors can still use their funds to offset any loans owed to the bank. The DICGC ensures that each depositor can reclaim up to Rs 5 lakh, providing a measure of financial security during these challenging times.

Claim Process for Depositors

Depositors must express their intent to claim insurance from the DICGC. Following this, DICGC verifies the claims. The 2021 amendment to the DICGC Act guarantees that depositors will receive their funds within 90 days from the start of the claim process. To enhance transparency, the DICGC introduced Daava Soochak in 2024. This online tool allows customers to monitor their claim status easily.

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