Guide to Deposit Insurance by DICGC for Savings Accounts

Has it ever occurred to you what might happen if a bank faces financial difficulties and is unable to pay its depositors? It can be worrisome, but banks are highly regulated to prevent such outcomes. They must maintain sufficient reserves and follow stringent rules to ensure they can meet their obligations.

Additionally, deposit insurance schemes, like the DICGC (Deposit Insurance and Credit Guarantee Corporation) in India, protect depositors by covering accounts to a certain extent. This means that even in the unlikely event of a bank failure, most depositors would still have access to their funds. Today, we’ll learn about its role and importance for your savings account deposits.

What is DICGC (Deposit Insurance and Credit Guarantee Corporation)?

It is a subsidiary of the Reserve Bank of India (RBI), which was established to secure the deposits of account holders in Indian banks. DICGC provides depositors with insurance coverage in case banks face a financial crisis or go bankrupt.  

The agency covers all kinds of bank deposit accounts, whether current, fixed, recurring, or online savings accounts. The maximum limit per account holder per bank is ₹ 5 lakhs. And if a person has more than this threshold in deposits in a single bank, DICGC will only pay ₹ 5 lakhs (principle and interest included) if the bank fails.

The working of DICGC

Whether it’s a commercial or a foreign bank located in India, DICGC covers all depositors. This includes central, state, urban cooperative, regional rural and local banks. The Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961, which the RBI drafted in accordance with the terms of Section 50, subsection (3) of the act, govern the operations. According to the laws, this corporation was established to guarantee credit facilities, insurance for deposits, and other relevant matters.

How will you know whether your bank is DICGC accredited or not?

Upon bank registration, DICGC provides the bank with a printed certificate that details the protections provided to insured bank depositors. Customers can ask bank employees about it if they have any questions.

Things not covered by DICGC

1. State or federal government deposits
2. Deposits made by international governments
3. State cooperative bank deposits made by state land development banks
4. Deposits between banks
5. Money owed to India and deposits made outside of the country
6. Money that the company has exempted with prior RBI clearance

How do I claim DICGC insurance?

The process to claim DICGC insurance is simple and easy. Here are the steps you need to follow:

1. As a part of the process, the RBI intervenes and instructs DICGC to pay the insurance amount to the depositors when a bank fails to meet its obligations and is in the process of liquidation.
2. Only after two to three months from the date of the bank’s failure will the DICGC begin the process of returning protected savings.
3. Then, the bank’s liquidator gets in touch with depositors directly or through media ads.
4. Depositors must then file a claim form with the liquidator, together with identity and account information documentation.
5. Finally, DICGC pays the depositors after the claim has been validated and authorised.

Are deposits in different banks insured separately?

Yes. If you have deposits with multiple banks, the deposit insurance coverage limit is applied differently to each bank’s deposits.  

What if you have more than one account at the same bank?

As per the clause, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage of up to ₹ 5 lakhs per account holder across all accounts at a single bank. This means that if you have multiple accounts at the same bank, the total insurance coverage remains at ₹ 5 lakhs, even if the funds in the accounts add up to more than that. 

For example, if you have Rs. 10 lakhs in a savings account and Rs. 5 lakhs in a fixed deposit account at the same bank, only ₹ 5 lakhs would be insured. 

Endnote

The bank pays the insurance premium to the DICGC. The depositors are not charged for this coverage. How do banks pay this amount? It is paid based on their deposits at the end of the previous half-year. The insured banks pay the corporation advance insurance premiums semi-annually within two months of the start of each financial half-year.