Bank failure in India: How DICGC protects your money

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When a bank suddenly collapse it can trigger panic among depositors. In India, your deposits are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a fully-owned subsidiary of the Reserve Bank of India. This cover gives you a refund of part — or all — of your money up to a limit in the event that your bank is wound up or placed into moratorium. Knowing how this works may help you keep your nerve and plan ahead more effectively.

The cover limit

DICGC insures deposits of ₹5 lakh per depositor per bank. This includes the principal and interest in all the accounts that you are eligible for coverage you have with that bank – savings, fixed, current, and recurring deposits. If you have more than one account in various banks, the ₹5 lakh cover per bank is applicable for each of them. However, if you have multiple accounts with the same bank, it does not get added; they are considered collectively for insurance.

What happens when a bank fails

In the event that a bank is shut down or placed under RBI-imposed restrictions, DICGC steps in after the bank's licence is cancelled or liquidation proceedings are commenced. The bank's records are used to determine the insured deposit of each depositor. DICGC deposits the amount into the bank's liquidator, who then offers it to customers. The process typically takes no longer than 90 days from date of filing.

Which banks are covered

All the foreign banks with Indian branches as well as most of the cooperative banks are covered by DICGC. However, deposits with unregistered cooperative societies, housing finance companies, and non-banking financial companies (NBFCs) are not covered. Before you actually open an account, it is worth checking whether your bank is registered under DICGC; most banks actually display this information at their branches and website.

Why you should still diversify deposits

While ₹5 lakh insurance covers minor depositors, larger-balance depositors should diversify their funds across a group of banks to increase coverage. You can even club this with low-risk investments such as government bonds or post office schemes to reduce the impact if one becomes a victim of failure.

FAQs

Q: Do I get individual insurance if I have a joint account?

Yes, joint accounts are counted as a separate category from single accounts if order and ownership of names vary. Every unique combination is eligible for up to ₹5 lakh coverage.

Q: Will deposits in credit societies be insured under DICGC insurance?

No, deposits in non-RBI-registered credit societies are not covered under DICGC insurance.

Q: How long will it take to get my money back if my bank shuts down?

Typically, DICGC settles claims within 90 days from the date the liquidator submits all depositor data. However, delays can occur if bank records are incomplete or disputed.