Haris Ashley
In the event of a bank collapse, it is natural to worry about the safety of your money. In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), offers deposit insurance for banks. This insurance covers up to Rs 5,00,000 per bank and depositor, including both interest and principal components. The DICGC becomes active during bank liquidation, reconstruction, or merger, and when the RBI implements withdrawal limitations. With the current insurance limit, less than 50% of deposits in Indian banks are fully insured, highlighting the importance of diversifying funds across multiple banks to maximise coverage.
| Characteristics | Values |
|---|---|
| Organisation responsible for insurance | Deposit Insurance and Credit Guarantee Corporation (DICGC) |
| Owner of DICGC | Reserve Bank of India (RBI) |
| Maximum insured amount per depositor for each bank | Rs 5 lakh |
| Maximum insured amount per account in case a bank goes bankrupt | $100,000 |
| Types of deposits insured | Savings, fixed, current, recurring, etc. |
| Types of deposits not insured | Foreign governments, central/state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI |
| Number of fully protected accounts as of March 31, 2023 | 294.5 crore |
| Percentage of total number of accounts that are fully protected | 98.1% |
| Number of banks on the deregistered list as of October 31, 2017, with claim list submission pending | 15 |
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What You'll Learn
Deposit insurance in India is Rs 5 lakh per depositor
Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), offers insurance cover for deposits opened with scheduled banks. The insurance programme covers cumulative bank deposits, including fixed deposits, savings accounts, recurring deposits, and current accounts. The scheme provides insurance of up to Rs 5 lakh per bank and depositor in the event of bank failures. This means that both the interest and the principal amount are insured under DICGC coverage.
The Rs 5 lakh deposit insurance limit may prove insufficient for individuals with substantial savings for long-term commitments such as retirement planning, educational expenses, or contingency funds. However, distributing deposits across multiple banks can enhance coverage, as personal accounts, business accounts, and different joint arrangements are treated separately.
The DICGC 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 directions that limit withdrawals.
The deposit insurance programme provides coverage of up to Rs 5 lakh per individual bank account. This means that if a depositor has multiple accounts in the same bank, each account will be insured separately up to Rs 5 lakh. However, if a depositor has accounts in different banks, each account will be insured separately up to the Rs 5 lakh limit.
The increase in deposit insurance from Rs 1 lakh to Rs 5 lakh by the DICGC is a positive step towards boosting depositor confidence and providing a sense of security, especially for senior citizens who rely on their deposit interest for regular income.
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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 (RBI) under the jurisdiction of the Ministry of Finance, Government of India. It 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.
DICGC insures all types of bank deposits, including savings, fixed, current, and recurring, up to a limit of ₹5,00,000 per bank and depositor in the event of bank failures. This limit was increased from ₹1,00,000 to ₹5,00,000 in February 2020. The insurance covers both the interest and principal components of the deposits.
The DICGC 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 the claims; during bank reconstruction or merger, where it covers the difference between the full deposit amount (capped at ₹5,00,000) and the amount received under new arrangements; and when the RBI implements directions that limit withdrawals.
The DICGC is funded by the banks, which pay a sum as an insurance premium. In the event of a bank liquidation, the liquidator prepares a depositor-wise claim list and sends it to the DICGC for scrutiny and payment. The DICGC then pays the money to the liquidator, who is liable to pay the depositors.
The Financial Sector Legislative Reforms Commission (FSLRC), set up by the Government of India in 2011, has recommended subsuming the present DICGC into a Resolution Corporation (RC) that will work across the financial system, including banks and insurance companies.
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Types of insured deposits
In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), offers insurance for deposits in scheduled banks. The insurance covers cumulative bank deposits, including fixed deposits, savings accounts, recurring deposits, and current accounts, up to a limit of Rs 5,00,000 per bank and depositor in the event of bank failures. This limit applies separately to each bank, allowing individuals to distribute their deposits across multiple banks to ensure coverage of all their deposits.
The DICGC insurance programme covers various types of deposits, including:
- Savings Accounts: Personal and business savings accounts are insured up to Rs 5 lakh per account.
- Fixed Deposits: These are covered up to Rs 5 lakh per bank and depositor.
- Current Accounts: Current accounts are insured, but certain exclusions apply, such as inter-bank deposits and central/state government deposits.
- Recurring Deposits: These are also covered by the DICGC insurance programme.
- FCNR, NRO, and NRE Accounts: Foreign currency non-resident (FCNR), non-resident ordinary (NRO), and non-resident external (NRE) accounts are insured.
It is important to note that certain deposits are not covered by the DICGC insurance. These include deposits belonging to foreign governments, central or state governments, overseas deposits, and specific funds exempted by the RBI. Additionally, primary cooperative societies' deposits are not insured by the DICGC.
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The process of claiming deposit insurance
In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), offers deposit insurance for banks. The DICGC's insurance programme covers deposits up to Rs. 5 lakh per bank and depositor, including both the interest and principal components. This limit applies to various deposit types, such as savings accounts, fixed deposits, current accounts, and recurring deposits.
During Bank Liquidation:
In the event of a bank's liquidation, the liquidator plays a crucial role in facilitating the claim process. The liquidator prepares a depositor-wise claim list and submits it to the DICGC for scrutiny and payment. After verifying the claims, the DICGC releases the insured amount to the liquidator, who is responsible for distributing it to the depositors. The DICGC must make the payment within 90 days of receiving the claim from the liquidator.
During Bank Reconstruction or Merger:
When a bank undergoes reconstruction or amalgamation with another bank, the DICGC calculates the difference between the full deposit amount (up to the Rs. 5 lakh cap) and the amount received by depositors under the new arrangements. The DICGC then pays the difference to the concerned bank or the Chief Executive Officer of the insured bank within two months of receiving the claim list.
When RBI Implements Withdrawal Limitations:
In situations where the RBI imposes all-inclusive directions that limit withdrawals, the DICGC becomes active to protect depositors' interests. The specific process followed by the DICGC in this scenario is not explicitly mentioned, but it likely involves ensuring that depositors can access their insured amounts up to the specified limit.
It is important to note that the DICGC's insurance coverage does not extend to all types of deposits. Deposits belonging to foreign governments, central or state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI are not eligible for DICGC protection. Additionally, primary cooperative societies are not insured by the DICGC.
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How safe are Indian banks?
The safety of money in Indian banks has been a concern for depositors, especially after the collapse of major banks in the US and the PMC bank crisis in India. The good news is that Indian banks do offer deposit insurance, so your money is generally safe even if the bank fails.
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI), provides insurance coverage for deposits in Indian banks. This insurance programme covers cumulative bank deposits, including fixed deposits, savings accounts, recurring deposits, and current accounts. The coverage is up to Rs. 5 lakh per bank and depositor, including both the interest and principal components. This means that if a bank fails, depositors will receive their money up to the insured amount.
The DICGC becomes active in specific situations, such as bank liquidation, reconstruction, merger, or when the RBI implements withdrawal limitations. In the case of liquidation, the DICGC pays the insured sum to the court-appointed liquidator within two months of receiving the claims. During a bank reconstruction or merger, the DICGC covers the difference between the full deposit amount (up to the insured limit) and the amount received under new arrangements.
It's important to note that not all types of deposits are covered by the DICGC. Deposits belonging to foreign governments, central or state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI are not eligible for this protection. Additionally, primary cooperative societies are also not insured by the DICGC.
To maximise insurance coverage, it is recommended to diversify your deposits across multiple banks so that the cumulative deposits in each bank do not exceed the insured limit. By strategically distributing your deposits, you can ensure that your money is protected even if a bank fails.
While the DICGC provides a safety net for depositors, it's important to stay informed about the financial health of banks and make informed decisions when choosing a bank in India.
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Frequently asked questions
Yes, India's Deposit Insurance and Credit Guarantee Corporation (DICGC) insures money deposited in Indian banks.
The DICGC insurance scheme covers up to Rs 5 lakh per account. This includes the principal and interest amount.
In the event of a bank's liquidation, the liquidator prepares a depositor-wise claim list and sends it to the DICGC for scrutiny and payment. The DICGC then pays the money to the liquidator, who is liable to pay the depositors.
No, certain deposits are not eligible for protection, such as those belonging to foreign governments, central/state governments, inter-bank deposits, overseas deposits, and specific funds exempted by the RBI.
You can check if your Indian bank account is covered by the DICGC by using online resources.
