Why in the News?

The Centre is actively considering increasing the deposit insurance cover beyond the current ₹5 lakh limit, as confirmed by Financial Services Secretary.

What is Deposit Insurance?

• Deposit Insurance is a financial protection mechanism for depositors if a bank fails or faces restrictions imposed by the RBI.
• It ensures compensation up to a set limit, even if the bank cannot return the money.
• It is provided by Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI.
• Coverage & Exclusions:
  • Covers: Savings accounts, fixed deposits (FDs), recurring deposits (RDs), current accounts (both principal & interest).
  • Does NOT cover: Deposits from foreign governments, central/state governments, inter-bank deposits, and primary cooperative societies.

About DICGC & Its Functions

• DICGC was established in 1961, a wholly-owned RBI subsidiary under the DICGC Act, 1961.
• It covers all commercial banks, regional rural banks, foreign banks in India, and cooperative banks.
• Banks pay the insurance premium; depositors do not pay any charges.
• It ensures timely compensation within 90 days of a bank’s collapse.

How does Deposit Insurance work?

• DICGC insures deposits up to ₹5 lakh per depositor per bank.
• The ₹5 lakh limit includes both principal and interest amounts.
• If a bank is facing financial distress or RBI-imposed restrictions, depositors are eligible to claim insurance under Section 18A of the DICGC Act, 1961.
• Payout Timeline:
  • Within 45 days: The troubled bank must submit a list of depositors to DICGC.
  • Within 90 days: DICGC processes and pays depositors up to ₹5 lakh.
• If a bank goes into liquidation, DICGC pays the insured amount within two months of receiving a claim list from the bank’s liquidator.
• When RBI restricts withdrawals from a bank, depositors are eligible to receive their insured deposits.

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