Bank Deposit Insurance Scheme – What is it & Amount covered

Most Indian investors opt for bank deposits as they expect safety and guaranteed returns from these. Bank deposits can include fixed deposits, recurring deposits, and savings or current accounts. While these investment formats are comparatively safer than others available in the market, are they entirely risk-free? Can investors assume that they will never lose money if they invest in these investment avenues? 

The answer is most likely, no. While using these investment options, investors should ask, what if a bank goes bankrupt? What happens to my bank deposits? This is when bank deposit insurance schemes come into the picture. Here, we will discuss how bank deposit insurance schemes can help protect investor interest and assure the safety of their investment to a certain extent.

What is bank deposit insurance?

Bank deposit insurance is a protection cover meant for bank deposit holders. It can be used in case a bank fails and does not have sufficient money to repay its depositors. Here are some of the noteworthy features of this insurance facility:

1. This insurance is covered by Deposit Insurance and Credit Guarantee Corporation (DICGC) which is a wholly owned subsidiary of the RBI.

2. DICGC provides insurance for all bank deposits, including savings, fixed, current and recurring deposits. The maximum limit is Rs 5 lakhs per bank account.

3. If the net deposit amount held by an individual in one bank exceeds Rs 5 lakhs, then he/she can avail only Rs 5 lakhs, including principal and interest amount. This is, in case the bank goes bankrupt.

4. DICGC provides deposit insurance to all depositors of commercial banks and foreign banks that operate in India. It covers state, central and urban co-operative banks, local area banks and regional rural banks. The bank must have bought the cover from DICGC for the insurance to be applicable to its depositors.

5. In case a bank fails or does not allow withdrawal of deposits, customers can claim the insurance cover of up to Rs. 5 lakhs and withdraw within this limit depending on the amount they have deposited with a bank.

Increased limit on bank deposit insurance

As per the latest announcements made by the Finance Minister of India, in case a bank fails or does not allow investors to make withdrawals due to any financial pressure, the depositors can get immediate access to their deposits up to the deposit insurance amount of Rs 5 lakhs.

In the recent past, many banks have faced financial stress and passed on the hardship to their depositors (for example, YES Bank and PMC Bank). The insurance cover on bank deposits has now been raised from Rs 1 lakh to Rs 5 lakhs. This is the new deposit insurance limit as per the amended Deposit Insurance and Credit Guarantee Corporation Act, 1961. This amendment is aimed at helping depositors to meet any immediate financial needs.

What kind of deposits are covered under Bank deposit insurance?

Here are the categories of deposits that are covered under the bank deposit insurance scheme:

DICGC covers all kinds of bank deposits such as savings, fixed, current, recurring, and so on except for the following deposits:

1. Deposits of foreign governments;
2. Deposits of Central/State Governments;
3. Inter-bank deposits;
4. Deposits of the State Land Development Banks with the State co-operative bank;
5. Any amount due on account of and deposit received outside India
6. Any amount that is specifically exempted by the corporation with the previous approval of Reserve Bank of India

What if a customer has accounts with different branches of the same bank?

At present, the insurance cover offered by the DICGC provides coverage to all accounts of an individual depositor held with different branches of the same bank. The maximum coverage is Rs 5 lakhs for all accounts. For those who have more than one account with the same bank (even if different bank branches) the insurance limit still remains Rs 5 lakhs.

Deposit insurance coverage limit is applicable separately to different deposits in different banks. For example, if a person has an account with SBI and HDFC Bank, both the bank accounts will be separately insured for up to Rs 5 lakhs each.

Status of joint accounts under bank deposit insurance

Both single and joint accounts are separately covered under the DICGC bank deposit insurance scheme. If an individual has a savings account that is operated solely by himself/herself and another account jointly operated with the spouse, both will be covered under the scheme. In case the bank fails, both the accounts are considered as separately insured under the deposit insurance scheme.

Is there a guaranteed insurance cover for all bank deposits?

Many bank accounts do not enjoy bank account insurance cover since banks do not register for the same with DICGC. As per the latest RBI report, nearly 49% of all bank deposits in India are not covered under the Rs. 5 lakhs insurance cover. The failure to register is mostly observed among co-operative and local area banks. 

To ensure that one’s bank deposit is protected, an investor should check if the bank is registered with the insurance provider and accordingly make a choice to deposit with the bank.

Conclusion

Bank deposit insurance scheme aims to bring down the risk associated with bank failures or bankruptcy. It protects investor interest by insuring the deposit amount up to a certain extent. Due to the recent increase in the insurance limit, bank account holders can surely benefit from the same.

FAQs

1. Can I insure my bank deposits in India?
   Your bank deposit in India is covered under an insurance of up to Rs. 5 lakhs by DICGC if your bank has registered itself for the scheme. 

2. What is bank deposit insurance?
   Bank deposit insurance is an insurance cover that protects the bank account holders against financial loss due to bank failure or bankruptcy.

3. Do your bank account deposits need insurance?
   Bank deposits require insurance to protect the interest of bank account holders. This is especially helpful in a scenario that the bank either fails or does not allow investors to make withdrawals.

4. What is DICGC?
   DICGC or Deposit Insurance and Credit Guarantee Corporation is a wholly owned subsidiary of the Reserve Bank of India. It was established to offer insurance on deposits and strengthen the credit facilities in India.

5. What is the maximum bank deposit insurance cover?
   The maximum cover provided under the bank deposit insurance scheme is Rs. 5 lakhs for all accounts within a single bank (even if different branches).