Bank deposits are often considered one of the safest places to park money, especially for those seeking stability and assured returns. However, in the rare event of a bank failure, not all deposits may be fully protected. In India, deposit insurance is provided up to a fixed limit.
These parked funds are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), which operates under the Reserve Bank of India () framework. This body ensures that depositors are protected up to a certain limit if a bank faces financial distress or restrictions.
What is covered and what is not
Under the current rules, each depositor is insured up to ₹5 lakh per bank, covering both principal and interest. This protection is offered across different types of accounts, including savings, fixed, current, and recurring.
All deposits held by a person in the same bank are aggregated for purposes, regardless of the number or type of accounts. The total balance across savings, current, and fixed deposit accounts is treated as a single amount, with insurance coverage capped at ₹5 lakh per person per bank.
The body does not insure deposits belonging to foreign governments, central or state governments, inter-bank deposits, and state land development banks with the state co-operative bank, according to RBI.
It also does not cover any deposits held outside India or any amounts that have been specifically exempted by the corporation with prior approval from RBI, the Central bank noted. Hence, understanding how this limit works is important, particularly for individuals holding balances above the insured threshold.
How will you know whether your bank is insured by the DICGC or not?
The DICGC while registering the banks as insured banks furnishes them with printed leaflets for display giving information relating to the protection afforded by the Corporation to the depositors of the insured banks. In case of doubt, depositor should make specific enquiry from the branch official in this regard, according to RBI.
Additionally, all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC. At present, all co-operative banks are also covered by the DICGC. But, primary cooperative societies are not insured by the insurance body.
What is not covered under deposit insurance?
According to Upstox, not all financial assets are covered under deposit insurance as it is strictly meant for bank deposits. The DICGC cover does not apply to:
- Mutual funds
- Shares of a company
- Insurance policies
- Cryptocurrencies
- Any market-linked investments
Are your deposits safe if they is parked in different banks?
According to RBI, deposit insurance applies separately for each bank. So if a person has spread their money across multiple banks, then each bank gets its own ₹5 lakh coverage which would protect your funds.
In the case of joint accounts too, each holder is treated as a separate . So insurance coverage is calculated individually for each person. However, the ₹5 lakh limit still applies per depositor per bank.
If a bank is undergoing liquidation, the liquidator prepares depositor wise claim list and sends it to the DICGC for scrutiny and payment. The DICGC pays the insurance amount to the liquidator who is liable to pay to the depositors. In the case of amalgamation or merger of banks, the amount due to each depositor is paid to the transferee bank.