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What is Deposit Insurance and How Does it Protect Your Money?

This article explains the concept of Deposit insurance that protects bank depositors from losing their money, up to a certain amount, if a bank fails.

What is Deposit Insurance and How Does it Protect Your Money?


Posted on 15 Oct 2023
Author: Sayan Sircar
9 mins read
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This article explains the concept of Deposit insurance that protects bank depositors from losing their money, up to a certain amount, if a bank fails.

What is Deposit Insurance and How Does it Protect Your Money?

📚 Topics covered:

What is Deposit Insurance for bank accounts?

Deposit insurance explainer:

The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures deposits in banks up to ₹5 lakh per depositor. This includes savings, fixed, current, recurring, etc. deposits. Deposits of foreign governments, central/state governments, inter-bank deposits, deposits of the State Land Development Banks with the State co-operative bank, any amount due on account of and deposit received outside India, and any amount exempted by the DICGC with the approval of the RBI are not insured.

If a bank fails, the DICGC will pay out the insured amount to depositors within two months. The DICGC pays the money to the liquidator of the failed bank, who then distributes it to the depositors.

The DICGC is a government-owned corporation and the deposit insurance scheme is compulsory for all banks.

What are the main features of Deposit Insurance?

The main feature of DICGC insurance is:

Up to ₹5 lakhs per bank is insured per deposit holder

The main features are:

  • the payout amount is capped at ₹5 lakhs per bank and not per bank branch. For example, if you have ₹15 lakhs in your name in 3 branches of the same bank then only ₹5 lakhs is insured
  • the insurance applies based on the holding mode. If A and B are spouses, then they can have 4 different types of holdings typically: A and B separate and A + B and B + A in join mode. Each such mode is eligible for up to ₹5 lakhs
  • if there is more than ₹5 lakhs in the bank, the payout amount is capped at ₹5 lakhs. This amount includes both principal and interest
  • if a bank becomes eligible for DICGC payment, then the payment is expected to come to you in two months
  • this is a form of insurance and the premium is paid by the bank

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Does DICGC insurance mean that I can keep up to 5 lakhs in any bank?

DICGC payout gets triggered usually once the failed bank will get absorbed by another stronger bank or liquidation happens. For example, while the new rules say that DICGC insurance will get triggered in 2 months, there are limited examples of such early payout. Delay in return of investment reduces the final return from the investment. For a 6% FD held for 5 years, the cost of delay looks like this:

Delay in months Effective Rate
No delay 6.000%
1 5.899%
2 5.801%
3 5.706%
4 5.615%
5 5.526%
6 5.440%
7 5.357%
8 5.276%
9 5.197%
10 5.121%
11 5.047%
12 4.976%
24 4.250%
36 3.709%
48 3.290%
60 2.956%

As a recent example, Punjab & Maharashtra Cooperative Bank Ltd (PMC Bank) depositors got back their money, up to ₹5 lakhs, in March 2022 while RBI imposed restrictions on withdrawals in September 2019.

Which banks are covered under DICGC insurance?

From the DICGC website:

Sl.No. Bank Type Count
1 Public Sector Banks 12
2 Private Sector Banks 21
3 Foreign Banks 44
4 Small Finance Banks 12
5 Payment Banks 6
6 Regional Rural Banks 43
7 Local Area Banks 2
8 State Co-operative banks 33
9 District Central Co-op banks 352
10 Urban Co-op banks 1484

List of Public Sector Banks

Sl.No. Bank’s Name
1 Bank Of Baroda
2 Bank Of India
3 Bank Of Maharashtra
4 Canara Bank
5 Central Bank Of India
6 Indian Bank
7 Indian Overseas Bank
8 Punjab And Sind Bank
9 Punjab National Bank
10 State Bank Of India
11 Uco Bank
12 Union Bank Of India

List of Private Sector Banks

Sl.No. Bank’s Name
1 Axis Bank Ltd
2 Bandhan Bank Lilmited
3 City Union Bank Ltd.
4 Csb Bank Limited
5 Dcb Bank Ltd.
6 Dhanalakshmi Bank Ltd.
7 Federal Bank Ltd.
8 Hdfc Bank Ltd
9 Icici Bank Limited
10 Idbi Bank Ltd.
11 Idfc First Bank Limited
12 Indusind Bank Ltd
13 Jammu And Kashmir Bank Ltd.
14 Karnataka Bank Ltd.
15 Karur Vysya Bank Ltd.
16 Kotak Mahindra Bank Ltd.
17 Nainital Bank Ltd.
18 Rbl Bank Limited
19 South Indian Bank Ltd.
20 Tamilnad Mercantile Bank Ltd.
21 Yes Bank Ltd.

List of Payments Banks

Sl.No. Bank’s Name
1 Airtel Payments Bank Limited
2 India Post Payments Bank Limited
3 Paytm Payments Bank Limited
4 Fino Payment Bank Ltd
5 Jio Payments Bank Limited
6 Nsdl Payments Bank Limited

List of Small Finance Banks

Sl.No. Bank’s Name
1 North East Small Finance Bank Ltd
2 Ujjivan Small Finance Bank Limited
3 Fincare Small Finance Bank Ltd
4 Jana Small Finance Bank Limited
5 Esaf Small Finance Bank Ltd.
6 Suryoday Small Finance Bank Limited
7 Capital Small Finance Bank Limited
8 Au Small Finance Bank Ltd.
9 Equitas Small Finance Bank Limited
10 Utkarsh Small Finance Bank Limited
11 Shivalik Small Finance Bank
12 Unity Small Finance Bank

The complete list of banks is here: https://www.dicgc.org.in/FD_ListOfInsuredBanks.html

Which are the safest banks in India even after DICGC insurance?

We are strongly of the opinion that debt investments, especially in the case of bank deposits, is the wrong place to take risk. Risk should be taken with volatile assets like equity, bonds, gold and real estate. Money kept in banks deserve absolute safety and are not the place to chase returns. Most investors who are looking for the safety of banks are doing something fundamentally wrong if they are chasing returns in a safe investment.

In this context, we will cover the concept of SIFI banks. RBI defines SBI, ICICI and HDFC as too-big-to-fail or Systematically Important (SIFI), and investors should stick to them for investment during retirement.

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This post titled What is Deposit Insurance and How Does it Protect Your Money? first appeared on 15 Oct 2023 at https://arthgyaan.com


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