by Bank deposits consist of money placed into banking institutions for safekeeping. These deposits are made to deposit accounts such as savings accounts, checking accounts, and money market accounts. The account holder has the right to withdraw deposited funds, as set forth in the terms and conditions governing the account agreement.
The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank.
Deposits of banks are classified into three categories:
(i) Demand deposits that is repayable on customers’ demand. These comprise the following:
- Current account deposits
- Savings bank deposits
- Call deposits
(ii) Term deposits that are repayable on maturity dates as agreed between the customers and the banker. These comprise the following:
- Fixed deposits
- Recurring deposits
(iii) Hybrid deposits or flexi deposits, which combine features of demand and term deposits. Lately, these deposits have been introduced by some banks to satisfy customers’ financial needs and convenience and are known by different names in different banks.
Demand and time deposits of a bank constitute its demand and time liabilities that the bank reports every week (on every Friday) to the RBI.
Types of Bank Deposits
Current (Demand Deposit) Account
A current account, also called a demand deposit account, is a basic checking account. Consumers deposit money and the deposited money can be withdrawn as the account holder desires on demand. These accounts often allow the account holder to withdraw funds using bank cards, checks, or over-the-counter withdrawal slips. In some cases, banks charge monthly fees for current accounts, but they may waive the fee if the account holder meets other requirements such as setting up direct deposit or making a certain number of monthly transfers to a savings account.
Savings Accounts
Savings accounts offer account holders interest on their deposits. However, in some cases, account holders may incur a monthly fee if they do not maintain a set balance or a certain number of deposits. Although savings accounts are not linked to paper checks or cards like current accounts, their funds are relatively easy for account holders to access.
In contrast, a money market account offers slightly higher interest rates than a savings account, but account holders face more limitations on the number of checks or transfers they can make from money market accounts.
Call Deposit Accounts
Financial institutions refer to these accounts as interest-bearing checking accounts, Checking Plus, or Advantage Accounts. These accounts combine the features of checking and savings accounts, allowing consumers to easily access their money but also earn interest on their deposits.
Certificates of Deposit/Time Deposit Accounts
Like a savings account, a time deposit account is an investment vehicle for consumers. Also known as certificates of deposit (CD), time deposit accounts tend to offer a higher rate of return than traditional savings accounts, but the money must stay in the account for a set period of time. In other countries, time deposit accounts feature alternative names such as term deposits, fixed-term accounts, and savings bonds.
DICGC
Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of Reserve Bank of India. It was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and guaranteeing of credit facilities.
DICGC insures all bank deposits, such as saving, fixed, current, recurring deposit for up to the limit of Rs. 500,000 of each deposits in a bank.
Legal Framework/Objective
The functions of the subsidiary are governed by the provisions of ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961’ (DICGC Act) and ‘The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961’ framed by the Reserve Bank of India in exercise of the powers conferred by sub-section (3) of Section 50 of the Act.
A maximum of ₹5,00,000 (after the budget of 2020-21) is insured for each user for both principal and interest amount. If the customer has accounts in different banks, all of those accounts are insured to a maximum of ₹5,00,000 each.
However, if there are more accounts in same bank, all of those are treated as a single account. The insurance premium is paid by the insured banks itself. This means that the benefit of deposit insurance protection is made available to the depositors or customers of banks free of cost.
The Corporation has the power to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. The Corporation may restore the registration of the bank if the bank makes a request and pays all the amounts due by way of premium from the date of default together with interest.
Reforms
The Financial Sector Legislative Reforms Commission (FSLRC) was a body set up by the Government of India, Ministry of Finance, on 24 March 2011, to review and rewrite the legal-institutional architecture of the Indian financial sector. In its report the FSLRC recommended a regulatory structure consisting of seven agencies including deposit insurance-cum regulatory agency (which was named as Resolution Corporation). The present DICGC will be subsumed into the Resolution Corporation (RC) which will work across the financial system.
Drawing on the best international practice, the FSLRC proposal involved a unified resolution corporation that will deal with an array of financial firms such as banks and insurance companies; it will not just be a bank deposit insurance corporation. It will concern itself with all financial firms which make highly intense promises to consumers, such as banks, insurance companies, defined benefit pension funds, and payment systems.
It will also take responsibility for the graceful resolution of systemically important financial firms, even if they have no direct links to consumers.
The Government of India introduced the Financial Resolution and Deposit Insurance bill, 2017 (FRDI bill) in Lok Sabha in the Monsoon session of 2017 to bring forth these reforms. There have been many concerns with regards to the new bill such as:
Presently the banks have to pay a sum to the DICGC as insurance premium which insures all kinds of bank deposits up to a limit of ₹5,00,000. In case a stressed bank had to be liquidated, the depositors would be paid through DICGC. Though the bill proposes the banks to pay a sum to the Resolution Corporation, it neither specifies the insured amount nor the amount a depositor would be paid. It is thus unclear how much a depositor would be paid in case of liquidation.
The bail in clause which largely worked against the interests of the depositors (as in Cyprus).
