90-Day Payout Rule (DICGC)

The 90-Day Payout Rule of the Deposit Insurance and Credit Guarantee Corporation (DICGC) is a significant reform in India’s banking safety framework. It mandates a time-bound settlement of insured deposits to depositors of failed banks, thereby strengthening depositor confidence and enhancing systemic stability. In the context of banking, finance, and the Indian economy, this rule represents a shift towards greater depositor protection, transparency, and accountability within the financial system.
The rule assumes particular importance in an economy like India, where banks play a central role in financial intermediation and household savings are predominantly held in bank deposits.

Background of DICGC and Deposit Insurance in India

The Deposit Insurance and Credit Guarantee Corporation is a wholly owned subsidiary of the Reserve Bank of India. It was established in 1978 through the merger of the Deposit Insurance Corporation and the Credit Guarantee Corporation. The primary objective of DICGC is to provide insurance coverage to bank depositors in the event of bank failure.
Deposit insurance in India covers:

• Commercial banks, including public sector, private sector, and foreign banks operating in India
• Regional Rural Banks
• Local Area Banks
• Co-operative banks

Under the deposit insurance framework, each depositor is insured up to ₹5 lakh per bank, including both principal and interest, subject to certain conditions.

Emergence of the 90-Day Payout Rule

Historically, depositors of failed banks in India faced prolonged delays in receiving insured amounts. Settlement often took several years due to procedural complexities, litigation, and lack of strict timelines. Such delays eroded public confidence in the banking system, particularly during episodes of co-operative bank failures.
To address this concern, the Government of India amended the DICGC Act, 1961 through the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021. One of the most important provisions of this amendment was the introduction of a mandatory 90-day time limit for payout of insured deposits.

Meaning and Scope of the 90-Day Payout Rule

The 90-Day Payout Rule requires DICGC to pay the insured amount to depositors within 90 days from the date on which certain trigger events occur. These trigger events include:

• Cancellation of a bank’s licence by the Reserve Bank of India
• Imposition of a liquidation or winding-up order
• Initiation of a scheme of compromise, arrangement, or reconstruction

Once such an event occurs, the bank or liquidator is required to submit depositor data to DICGC promptly, enabling timely settlement.

Operational Mechanism of the Rule

The payout process under the 90-day rule involves coordinated action among multiple stakeholders:

• The concerned bank or administrator compiles depositor-wise claims
• The information is verified and forwarded to DICGC
• DICGC processes the claims and releases funds to depositors through designated channels

This structured mechanism ensures that depositors receive their insured funds without having to file individual claims or pursue lengthy legal remedies.

Significance for Banking Stability

The 90-Day Payout Rule enhances stability in the banking system in several ways:

• It reinforces trust in banks, particularly among small depositors
• It reduces the likelihood of panic withdrawals and bank runs
• It strengthens the credibility of the deposit insurance framework

By assuring depositors of timely access to their insured funds, the rule acts as a financial safety net and supports orderly resolution of distressed banks.

Impact on Depositors and Financial Inclusion

Small and retail depositors are the primary beneficiaries of the 90-day payout rule. For many households, bank deposits represent life savings, emergency funds, or retirement security. Timely access to insured deposits:

• Protects vulnerable sections from financial distress
• Encourages continued participation in the formal banking system
• Supports broader goals of financial inclusion

This assurance is particularly relevant in rural and semi-urban areas, where co-operative banks have a strong presence and depositor awareness may be limited.

Implications for Banks and Financial Discipline

The rule also has important implications for banks:

• Banks are incentivised to maintain accurate and up-to-date depositor records
• Governance standards and compliance requirements are strengthened
• Weak banks face greater scrutiny and faster resolution

In the long run, this contributes to improved risk management and operational discipline within the banking sector.

Role in the Indian Economy

From a macroeconomic perspective, the 90-Day Payout Rule supports economic stability by safeguarding household savings. Stable deposit mobilisation enables banks to perform their core function of credit creation, which is essential for:

• Industrial investment
• Infrastructure development
• MSME financing
• Consumption-led growth

By reducing uncertainty during bank failures, the rule limits contagion effects and preserves confidence in the financial system, which is critical for sustained economic growth.

Relationship with Banking Reforms and Resolution Frameworks

The 90-day payout provision complements broader banking reforms in India, including:

• Strengthening of prudential regulation and supervision by the RBI
• Implementation of prompt corrective action frameworks
• Integration with bank resolution and reconstruction mechanisms

While the Insolvency and Bankruptcy Code primarily addresses corporate insolvency, the DICGC payout rule focuses on depositor protection, together forming a comprehensive safety architecture.

Challenges and Limitations

Despite its benefits, the 90-day payout rule faces certain challenges:

• Delays may still occur if depositor data is inaccurate or incomplete
• Complex ownership structures or joint accounts can slow verification
• The insurance limit of ₹5 lakh may be insufficient for larger depositors

Nevertheless, these limitations relate to coverage and implementation rather than the principle of time-bound payout itself.

Criticism and Policy Debate

Some critics argue that assured and rapid payouts could create moral hazard, reducing depositor vigilance and encouraging banks to take excessive risks. However, this concern is mitigated by:

• Limited insurance coverage
• Strong regulatory oversight by the RBI
• Capital and governance requirements imposed on banks