Alyssa Lane
In the event of a bank collapse, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), offers deposit insurance coverage of up to Rs. 5 lakh per bank and depositor. This insurance covers various deposit types, including savings accounts, fixed deposits, and current accounts. However, it's important to note that not all deposits in Indian banks are insured, and the coverage may not always be sufficient for individuals with substantial savings. The RBI's annual report for 2022-23 revealed that while 98.1% of deposits had insurance coverage in terms of number, only 46.3% of total deposits were fully protected in terms of amount.
| Characteristics | Values |
|---|---|
| Deposit Insurance Coverage | Rs 5 lakh per account |
| Types of Accounts Covered | Savings, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, NRE accounts |
| Number of Registered Insured Banks | 2,027 as of March 31, 2023 |
| Types of Insured Banks | Commercial banks, local area banks, payments banks, small finance banks, regional rural banks, cooperative banks |
| Percentage of Accounts Covered | 98.1% as of March 31, 2023 |
| Percentage of Amount Covered | 46.3% as of March 31, 2023 |
| Total Deposits in Commercial Banks (2023-24) | ₹21,253,358 crore |
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What You'll Learn
Deposit insurance covers various account types
Deposit insurance in India is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI). The insurance covers various types of accounts, including fixed deposits, savings accounts, current accounts, and recurring deposits. It also covers other accounts such as FCNR, NRO, and NRE accounts.
The DICGC provides coverage of up to Rs. 5 lakhs per individual bank account. This limit includes both the principal and interest amounts held by the depositor. The insurance is applicable to deposits across all banks in India, and the coverage is determined by aggregating the funds in the same type of ownership (single or joint account) at the same bank.
If a depositor has multiple accounts with different types of ownership, the DICGC provides separate insurance coverage for each type. For example, if an individual has a joint account with their spouse and a sole proprietorship account at the same bank, the funds from both accounts would be insured separately. However, if an individual has multiple accounts with the same type of ownership at different banks, the DICGC ensures that the depositor is covered individually for each account.
While the current insurance limit may be insufficient for individuals with substantial savings, it promotes financial inclusion by encouraging individuals from all backgrounds to participate in the formal banking system. The knowledge that their deposits are protected gives people access to secure and reliable banking services. Additionally, investors can make more informed decisions and have greater confidence in the safety of their fixed deposits by understanding the coverage provided by the DICGC.
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Deposit insurance limit is Rs 5 lakh per account
The Deposit Insurance and Credit Guarantee Corporation (DICGC) covers deposits in Indian banks. The insurance coverage extends to various deposit types, including savings accounts, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, and NRE accounts. However, certain deposits are not eligible for this protection, such as those belonging to foreign governments, central or state governments, etc.
The DICGC covers each depositor in a bank for a maximum of Rs 5 lakh per account. This includes all deposits held by a person in a current account, savings account, fixed deposits, etc. The coverage is provided for each bank, so distributing deposits across multiple banks can increase protection.
The deposit insurance programme becomes active in three specific situations: during bank liquidation, where it pays the insured sum to the court-appointed liquidator within two months of receiving claims; during bank reconstruction or merger, where it covers the gap between the full deposit amount (capped at Rs 5 lakh) and the amount received under new arrangements; and when the RBI implements all-inclusive directions that limit withdrawals.
The Rs 5 lakh deposit insurance limit may not be sufficient for individuals with substantial savings for long-term commitments such as retirement planning, educational expenses, or contingency funds. In such cases, distributing deposits across multiple banks can provide additional protection.
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Less than 50% of deposits are fully insured
The Reserve Bank of India's (RBI) annual report for 2022-23 revealed that less than 50% of deposits with banks are fully insured. While 98.1% of deposits have insurance coverage, only 46.3% of total deposits are fully protected. This amounts to Rs 83,89,470 crore in insured deposits, which constitutes 46.3% of assessable deposits of Rs 1,81,14,550 crore.
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, offers insurance cover for deposits in scheduled banks. The insurance program covers cumulative bank deposits, including fixed deposits, savings accounts, recurring deposits, and current accounts, up to Rs 5,00,000 per bank and depositor in the event of bank failures. The insurance covers both the interest and principal components.
The DICGC becomes active in specific situations, such as bank liquidation, reconstruction, or merger, and when the RBI implements directions that limit withdrawals. It ensures that depositors with accounts in multiple banks are covered individually for each account.
However, certain deposits are not eligible for protection, such as those belonging to foreign or central/state governments. Additionally, if a depositor holds multiple accounts in the same bank, the insurance coverage is limited to Rs 5,00,000 across all accounts.
To enhance insurance coverage, individuals can distribute their deposits across multiple banks or utilise different ownership structures within a single bank.
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Deposit Insurance and Credit Guarantee Corporation (DICGC)
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of the Reserve Bank of India, operating under the jurisdiction of the Ministry of Finance, Government of India. The DICGC was established on 15 July 1978 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, to provide insurance of deposits and guarantee credit facilities.
The DICGC insures all types of bank deposits, including savings, fixed, current, and recurring deposits, up to a limit of ₹5,000,000 per individual bank account. This limit was increased from ₹100,000 to ₹500,000 on 4 February 2020. The insurance coverage provided by the DICGC extends to various deposit types across multiple banks, ensuring that a depositor with accounts in two different banks that face closure is covered individually for each account.
The DICGC becomes active in specific situations, such as bank liquidation, reconstruction, or merger, and when the RBI implements inclusive directions that limit withdrawals. During bank liquidation, the DICGC pays the insured sum to the court-appointed liquidator within two months of receiving the claims. In the case of bank reconstruction or merger, the DICGC covers the gap between the full deposit amount (up to the insured limit) and the amount received under new arrangements.
The DICGC is governed by the provisions of the DICGC Act, 1961, and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961, framed by the Reserve Bank of India. The Financial Sector Legislative Reforms Commission (FSLRC), established by the Government of India in 2011, has recommended subsuming the current DICGC into a unified Resolution Corporation that would oversee a broader range of financial firms, including insurance companies and payment systems.
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Deposit Insurance Fund (DIF) reserve ratio
The Deposit Insurance Fund (DIF) is a fund that insures the deposits of individuals in banks covered by the Federal Deposit Insurance Corporation (FDIC). The primary purposes of the DIF are to insure deposits and protect depositors of insured banks, and to resolve failed banks. The DIF is funded mainly through quarterly assessments on insured banks. The Federal Deposit Insurance Act (FDI Act) requires that the FDIC Board of Directors designate a reserve ratio for the DIF and publish it before the beginning of each calendar year. This is known as the Designated Reserve Ratio (DRR) and is the DIF balance divided by estimated insured deposits.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 set the required minimum reserve ratio to 1.35%. If the reserve ratio falls below 1.35% or is expected to within 6 months, the FDIC must adopt a restoration plan to restore the DIF reserve ratio to at least 1.35% within 8 years. The FDIC Board adopted a 2% DRR in its long-term management plan for the DIF, which it has stuck to each year since 2010. However, an analysis showed that the reserve ratio would have had to exceed 2% to maintain a positive fund balance and stable assessment rates during the last two major banking crises.
The banking system's influx of insured deposits associated with pandemic-related fiscal and monetary support triggered a decline in the DIF's reserve ratio below the legal minimum in 2020. The FDIC adopted a Restoration Plan in 2020 to restore the DIF to at least 1.35% by September 30, 2028. The DIF reserve ratio increased from 1.11% in June 2023 to 1.15% at the end of 2023, and further increased to 1.21% in the second quarter of 2024. The FDIC projects that the reserve ratio remains on track to reach the statutory minimum of 1.35% by 2026.
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Frequently asked questions
Yes, deposits in Indian banks are insured.
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI, offers insurance cover for deposits up to Rs 5,00,000 per bank and depositor in the event of bank failures.
The insurance programme covers various deposit types, including savings accounts, fixed deposits, current accounts, recurring deposits, FCNR, NRO accounts, and NRE accounts.
If a bank's registration is cancelled, the bank's deposits are still insured until the date of cancellation.
The DICGC ensures that the depositor is covered individually for each account. Therefore, it is recommended to diversify among various banks to get the maximum insurance coverage on your deposits.
