Deposit insurance is a protective scheme designed to ensure that depositors receive compensation in the event of a bank failure. In India, this essential cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a subsidiary of the Reserve Bank of India (RBI).
The current limit for deposit insurance stands at ₹5 lakh per depositor for each bank. This amount encompasses both the principal and the interest accrued on deposits.
The DICGC provides coverage to a wide range of financial institutions. This includes all commercial banks, regional rural banks, local area banks, and co-operative banks. However, it is important to note that primary co-operative societies do not fall under this coverage.
Insurance under the scheme applies to various types of deposits, including savings, fixed, current, and recurring deposits. Nonetheless, certain deposits, such as those held by foreign governments, central and state governments, and inter-bank deposits, are excluded from this insurance.
The responsibility of paying the premium for deposit insurance lies with the banks themselves. Depositors are not required to pay any additional charges for this insurance coverage.
In the unfortunate event of a bank failure, depositors can claim compensation up to ₹5 lakh, which includes both their principal amount and interest. The settlement of claims is conducted within 45 days after the bank liquidator provides the necessary information.
Since its introduction in 1962, the deposit insurance limit has undergone several revisions. The most recent increase occurred in 2020 when the limit was raised from ₹1 lakh to ₹5 lakh.
The government is currently evaluating the possibility of increasing the deposit insurance limit to offer enhanced protection to depositors. This move is aimed at bolstering public confidence in the banking sector.
As of March 2024, accounts that are fully protected by deposit insurance constitute 97.8% of all bank deposit accounts. However, they only represent 29.6% of the total deposit value.
Increasing the deposit insurance limit is significant as it would provide improved security for depositors, particularly in smaller banks. This adjustment would also play a crucial role in enhancing public trust in the overall banking system.
Q1. What is the role of DICGC in deposit insurance?
Answer: The DICGC protects depositors by providing insurance coverage on their deposits in case of bank failure, ensuring financial security and stability in the banking sector.
Q2. How is the deposit insurance limit revised?
Answer: The deposit insurance limit can be revised by the government based on assessments of the banking system and economic needs, ensuring adequate protection for depositors.
Q3. Are all types of deposits insured under DICGC?
Answer: No, while savings, fixed, current, and recurring deposits are insured, deposits by foreign governments and inter-bank deposits are excluded from coverage.
Q4. How long does it take to settle claims after a bank failure?
Answer: Claims are typically settled within 45 days of receiving the necessary information from the bank liquidator, providing timely compensation to depositors.
Q5. Why is deposit insurance important for depositors?
Answer: Deposit insurance is vital as it safeguards depositors' funds, enhances public trust in the banking system, and promotes financial stability.
Question 1: What organization provides deposit insurance in India?
A) Reserve Bank of India
B) Deposit Insurance and Credit Guarantee Corporation
C) Securities and Exchange Board of India
D) National Bank for Agriculture and Rural Development
Correct Answer: B
Question 2: What is the current deposit insurance limit for depositors?
A) ₹1 lakh
B) ₹2 lakh
C) ₹5 lakh
D) ₹10 lakh
Correct Answer: C
Question 3: Which of the following is NOT covered by DICGC?
A) Commercial banks
B) Regional rural banks
C) Primary co-operative societies
D) Local area banks
Correct Answer: C
Question 4: How long does it take to settle claims after a bank fails?
A) 30 days
B) 45 days
C) 60 days
D) 90 days
Correct Answer: B
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