Are banks deposits insured?

People keep their savings (and earnings) in various bank accounts. But what happens if a bank fails (i.e. closes down)? Can the depositors get their money back? Are deposits with banks insured?

What is deposit insurance?

The deposits kept with the banks are insured by the banks with Deposit Insurance and Credit Guarantee Corporation (DICGC). In the event of failure of a bank, DICGC pays the depositors up to the insured amount of the deposits.

Which banks are covered for deposit insurance?

1. Public Sector Banks
2. Private Sector Banks
3. Foreign Banks – branches of foreign banks functioning in India
4. Small Finance Banks
5. Payment Banks
6. Regional Rural Banks
7. Local Area Banks
8. State Co-operative banks
9. District Central Co-op banks
10. Urban Co-op 

Primary cooperative societies are not insured by DICGC.

A list of banks insured with DICGC is available at https://www.dicgc.org.in/FD_ListOfInsuredBanks.html

Which deposits are covered for deposit insurance?

DICGC insures all deposits such as savings, fixed, current, recurring, etc. 

Which deposits are not covered for deposit insurance?

1. Deposits of foreign Governments
2. Deposits of Central / State Governments
3. Inter-bank deposits
4. Deposits of State Land Development Banks with State co-operative bank
5. Any amount due on account of and deposit received outside India
6. Any amount, which has been specifically exempted by DICGC with previous approval of RBI

What is the extent of insurance cover?

• Deposit insurance is for up to ₹ 5,00,000/-, per depositor, per bank. 
• The insured amount includes both principal and interest.
• The deposits held by the depositor in the same right and same capacity are clubbed together to calculate the insurance cover.
• The deposits kept in different branches of the same bank are clubbed together to calculate the insurance cover. However, the deposits kept in different banks are insured separately.

Which are the deposits held in the same right and same capacity?

• All the deposit (Savings + Current + fixed + recurring) of Mr.A in the same bank  are clubbed together for the insurance cover.
• If Mr.A opens deposit accounts in his capacity as a partner of a firm / guardian of a minor / director of a company / trustee of a trust / a joint account with another person in the same bank, then such accounts are insured separately. 
• Deposit held in the name of proprietary concern where depositor is sole proprietor and deposit held in his individual capacity are clubbed together for insurance cover.
• If more than one deposit accounts (savings, current, recurring or fixed) are jointly held by individuals in the same bank and their names appear in the same order, then all these accounts are clubbed together for insurance cover. However, if their names are not in the same order (for eg. A, B, C; or C, B, A; or C, A, B); or group of persons are different (for eg. A, B, C; or A, B, D) then, the deposits held in these joint accounts are insured separately. 

When is DICGC liable to pay?

1. Bank goes into liquidation
2. Bank is reconstructed or amalgamated / merged with another bank
3. Banks is under RBI’s ‘All Inclusive Direction (AID)’

What is the recent amendment to DICGC Act, 1961?

Deposit Insurance and Credit Guarantee Corporation Act, 1961 was amended as per the notification issued on August 13, 2021. The amendments came into force from September 1, 2021. 

A key amendment to the Act mandates that the interim insurance payment to depositors is to be completed within 90 days from the date of imposition of AID by RBI. The insured bank must submit claims after imposition of such restriction within 45 days, and DICGC has to get the claims verified within 30 days and pay the depositors within the next 15 days. In case RBI is in the process of finalising a scheme of amalgamation of the insured bank with another banking institution or a scheme of compromise / arrangement / reconstruction and the same is communicated to DICGC, then the date of repayment can be extended by a period not exceeding 90 days.

What are other facts about deposit insurance?

• Deposit insurance premium (Rs.12 paise per Rs.100 of deposit) is paid by the insured banks. 
• The banks must mandatorily get insured with DICGC.
• DICGC is wholly owned subsidiary of RBI.
• As per RBI Annual Report 2023-24, the number of protected accounts (281.8 crore) as on September 30, 2023 constituted 97.9% of the total number of accounts (287.9 crore). In terms of amount, the total insured deposits as on September 30, 2023 were 44.2% of assessable deposits. The insurance cover is 2.9 times per capita income in 2023-24. Reserve ratio (Deposit Insurance Fund / Insured Deposits) as on September 30, 2023 stood at 2.02%.

References

Reserve Bank of India. (2008, November 25). 'FAQ-Deposit Insurance'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=64

Reserve Bank of India. (2024, May 30). 'RBI Annual Report 2023-24 - VI. Regulation, Supervision and Financial Stability'. Retrieved from https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1406

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