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    Question

    Under Section 18(3) of the DICGC Act, 1961, Ms. B, a

    depositor, maintains a Fixed Deposit (FD) of ₹4,00,000 with Bank Z. Ms. B also has an unsecured personal loan outstanding with Bank Z with a balance of ₹1,20,000, on which she is currently in default by three months. The loan agreement explicitly permits the bank to set-off deposit amounts against loan dues. When Bank Z is placed under moratorium and subsequently ordered for liquidation, which of the following correctly determines Ms. B's insurance claim?
    A Ms. B is entitled to the full ₹4,00,000 insurance cover because deposits cannot be set-off against loans under DICGC regulations; loans are separate legal obligations Correct Answer Incorrect Answer
    B Ms. B is entitled to ₹2,80,000 (₹4,00,000 minus ₹1,20,000) because DICGC allows set-off of ascertained sums that the bank is legally entitled to claim against the depositor in the same capacity and right Correct Answer Incorrect Answer
    C Ms. B is entitled to ₹4,00,000, but the bank can pursue independent legal action to recover the loan; DICGC insurance is separate from bank's recovery rights Correct Answer Incorrect Answer
    D Ms. B is entitled to ₹3,00,000 because DICGC applies a mandatory 25% haircut on all insurance payments to fund future claims Correct Answer Incorrect Answer
    E Ms. B is entitled to ₹4,00,000 because the loan is unsecured; set-offs apply only to secured loans against deposits Correct Answer Incorrect Answer

    Solution

    Explanation: Section 16(2) and (3) of the DICGC Act (referenced in Section 18(3) framework) explicitly provide: "For the purposes of this section, the amount of a deposit shall be determined after deducting therefrom any ascertained sum of money which the insured bank may be legally entitled to claim by way of set-off against the depositor in the same capacity and in the same right." The critical requirements are: (i) the sum must be ascertained (not disputed); (ii) the bank must be legally entitled to claim set-off; (iii) the set-off must be against deposits held in the same capacity and same right. In Ms. B's case: (i) the loan default amount of ₹1,20,000 is ascertained; (ii) the loan agreement permits set-off; (iii) both the deposit and loan are in Ms. B's own capacity. Thus, the bank can legally set-off ₹1,20,000 against the ₹4,00,000 deposit, reducing the insurable amount to ₹2,80,000. This is a deduction before DICGC insurance payment is calculated, not after. Thus, option (B) correctly applies Section 18(3) and the related set-off provisions.

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