Explainer: The DICGC as a safety net in the New India Co-operative bank crisis

New India Co-operative Bank

Amidst the crisis at the Mumbai-based New India Co-operative Bank, where the Reserve Bank of India (RBI) has imposed severe restrictions following allegations of a Rs 122 crore fraud, the Deposit Insurance and Credit Guarantee Corporation (DICGC) becomes a safety net for the depositors.

The RBI's actions, which includes barring the bank from sanctioning new loans, renewing advances, and accepting new deposits, have also restricted depositors from withdrawing funds for six months, starting from the close of business on February 13.

However, amidst this turmoil, DICGC has proven to be a silver lining, facilitating the deposit insurance claim process, offering depositors a chance to recover up to Rs 5 lakh - which was increased from Rs 1 lakh - by May 14, 2025.

What is the DICGC?

The DICGC, a subsidiary of the RBI, was established to safeguard depositors in the event of a bank's failure.

This organisation insures deposits across all banks, offering depositors the security of recovering their funds up to a specified limit should their bank become insolvent or face financial distress.

Depositors from banks under stress can claim up to Rs 5 lakh from the DICGC, contingent upon their submission of willingness and subsequent verification, thereby providing a level of assurance for their savings.

However, the current system of deposit protection was not always in place.

Until April 2021, the only scenario in which depositors could claim their insured amount from the DICGC was if their bank had officially gone into liquidation.

This meant that during a moratorium, depositors were left in limbo, waiting for as long as the RBI took to determine whether the bank should proceed to liquidation. Only after this lengthy process could they hope to retrieve their funds.

However, changes brought by the 2021 Budget altered this dynamic.

The amendments to the Deposit Insurance and Credit Guarantee Corporation Act of 1967 introduced a policy allowing depositors immediate access to insurance coverage up to Rs 5 lakh, even when their bank was under a moratorium but not yet liquidated.

This reform ensures that depositors' funds, including both principal and interest, are protected up to the specified limit, even in the midst of a bank's financial uncertainty.
What is DICGC's role in the crisis with New India Co-operative bank?

The insurance coverage offered by the DICGC acts as a crucial safety net for depositors, especially since around 90 percent of the 1.3 lakh depositors at the bank are fully covered under this scheme.

Despite the current inability to withdraw from their savings, current, or other accounts due to the imposed restrictions, the bank can still use depositors' funds to offset any loans they might owe, as per RBI guidelines. This implies that any outstanding loans a depositor might have with the bank could be settled using their deposit balance.

DICGC's insurance extends up to Rs 5 lakh per depositor, ensuring that even during these restrictive times, there's a degree of financial security for depositors.

This mechanism enables them to reclaim their insured amount, including both the principal and interest, up to the specified limit.

With nearly 90 percent of depositors fully insured, this scheme significantly eliminates financial risks for a vast majority of the bank's customers.

How does it work for the depositors of the New India Co-operative Bank ?

Depositors are required to express their intent to claim insurance, after which the DICGC will verify these claims.

The 2021 amendment to the DICGC Act stipulates that depositors should expect to receive their funds within 90 days from the start of the claim process.

Customers can then monitor their claim status online via Daava Soochak, an online tool introduced by DICGC in 2024, designed to streamline and clarify the claim process.