Deposit Insurance in India

One of the important safety nets in the banking system is Deposit Insurance. In India, bank deposits are insured by an institution called DICGC – Deposit Insurance and Credit Guarantee Corporation – which is a wholly owned subsidiary of the Reserve Bank of India. Deposit insurance protects depositors by assuring that even if a bank fails or goes bankrupt, depositors will get back their money up to a certain limit from the insurance.

Historical Background

The concept of deposit insurance in India emerged after a series of bank failures in the 1940s and 1950s, which eroded public confidence in the banking system. To restore trust and strengthen the banking sector, the Deposit Insurance Corporation (DIC) was established under the Deposit Insurance Corporation Act, 1961 — making India the second country in the world, after the United States, to introduce deposit insurance.

The DIC began operations on 1 January 1962 under the Reserve Bank of India (RBI). In 1978, it was merged with the Credit Guarantee Corporation of India, forming the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI. Since then, DICGC has been responsible for implementing and managing deposit insurance across all eligible financial institutions in India.

DICGC Coverage and ₹5 Lakh Limit

The amount of deposit insurance has been revised periodically to match inflation and financial growth.

As of today, the insurance cover is ₹5,00,000 (five lakh rupees) per depositor per bank. This means if you have money in a bank that unfortunately goes into liquidation or moratorium, the DICGC will pay you back your deposits including interest up to a maximum of ₹5 lakh. This limit is applied on the sum of all deposits held by the person in one bank (in the same capacity).

For instance, if you have ₹3 lakh in a savings account and ₹4 lakh in a fixed deposit (FD) in the same bank, that’s ₹7 lakh total; DICGC would insure ₹5 lakh of that (you would potentially lose the amount beyond ₹5 lakh if the bank cannot pay). If instead you had those amounts in two different banks, each bank account is insured separately up to ₹5 lakh each. So, the ₹5 lakh limit is “per bank, per person”.

The insurance amount of ₹5 lakh is inclusive of both principal and interest. For example, if you had an FD of ₹4.8 lakh and it earned ₹30,000 interest, that totals ₹5.1 lakh. The insurance will still cap at ₹5 lakh (interest beyond that limit isn’t covered).

The ₹5 lakh limit was increased in 2020 (it was ₹1 lakh earlier for many years). Specifically, it was raised from ₹1 lakh to ₹5 lakh per depositor effective 4th February 2020 as a measure to boost depositor confidence after some bank failures.

What Deposits are Covered?

Deposit insurance in India covers a wide range of banks and deposit types.
Banks Covered:

• All commercial banks, including public sector banks, private sector banks, foreign banks operating in India, small finance banks, and regional rural banks (RRBs).
• All co-operative banks, both state and district-level (subject to DICGC coverage rules).

Deposits Covered:

• Savings accounts.
• Current accounts.
• Fixed deposits.
• Recurring deposits.

Deposits Not Covered:

• Deposits of foreign governments.
• Inter-bank deposits.
• Deposits of the Central and State Governments.
• Amounts due on account of unpaid loans or borrowings from the bank.

Payout Rule (90 Days) for Failed Banks

Earlier, if a bank failed, depositors sometimes had to wait years during the liquidation process to get their insured amount. In 2021, the law was amended to ensure time-bound payout. Now, under the DICGC (Amendment) Act, 2021, if a bank is placed under restrictions (like moratorium or “All Inclusive Directions” by RBI due to financial stress), the DICGC will pay depositors up to the ₹5 lakh insurance amount within 90 days.

This works as follows: Within 45 days of the bank’s collapse or restriction, the bank (or its administrator) has to compile and share the list of depositors and their balances with DICGC. DICGC then verifies and within the next 45 days (making 90 days total from the event) it will pay out the eligible amount to either the depositors directly or to the bank administrator to disburse. So, in about 2 to 3 months, depositors should get their insured money back, even if the bank’s full resolution will take longer.

This 90-day payout rule was introduced to increase trust – depositors don’t have to panic about losing all their money or waiting indefinitely; at least ₹5 lakh is secured and delivered in a fixed timeframe. Notably, ₹5 lakh covers a vast majority of retail depositors fully. According to government data, after this enhancement about 98% of deposit accounts by number are fully protected by the ₹5 lakh insurance limit (since most people have balances below 5 lakh).

Procedure for Settlement of Claims

When an insured bank fails or is placed under liquidation, the following procedure is followed for settlement:

• The RBI or the Registrar of Cooperative Societies appoints a liquidator for the failed bank.
• The liquidator prepares and submits a list of depositors and their outstanding balances to the DICGC.
• DICGC verifies the claims and settles the insured amount (up to ₹5 lakh) directly to the depositors through the liquidator within 90 days of receiving the claim list.

In 2021, the Government of India amended the DICGC Act to ensure time-bound payments to depositors of stressed or under moratorium banks, guaranteeing that insured deposits are paid within 90 days, even if the bank’s resolution is pending.

A few additional points: The premium for deposit insurance is paid by banks to DICGC; customers do not pay anything directly for this insurance. And no bank can opt out – it’s mandated for all (so you can be assured your bank deposits are insured, you usually even see a small sign in bank branches about “Deposits are insured by DICGC”). If you have more than ₹5 lakh, spreading funds across banks can increase the insured amount (e.g., ₹5 lakh per bank). Also, depositors don’t need to do any paperwork for insurance; it automatically applies if a bank fails.