Deposit Insurance – What happens if your bank fails?

Deposit insurance came back to limelight after the Silicon Valley Bank or SVB crisis in the USA. Given the global nature of the economy, people in India too started to ask if the banks will have a problem and are they covered by Deposit Insurance.

After all, not along ago we had failing banks such as the Lakshmi Vilas Bank, Punjab and Maharashtra Bank, not to forget the scare with Yes Bank.

Now, currently there are no troubled banks, but what happens if your bank goes under. What happens to the money you have in the bank?

The most important thing that you need to know is that all bank deposits are insured with the DICGC or the Deposit Insurance and Credit Guarantee Corporation of India.

But there are certain things that you need to know about this coverage and eligibility.

Here are a few FAQs that can help you understand this deposit insurance better. All FAQs are taken from this link on the DICGC website.

What does the DICGC insure?

The DICGC insures all deposits such as savings, fixed, current, recurring, etc. deposits of most commercial banks, foreign banks, local area banks and regional rural banks. At present all co-operative banks are also covered. 

Primary cooperative societies are not insured by the DICGC.

What is the maximum deposit amount insured?

Each depositor in a bank is insured upto a maximum of5,00,000 (Rupees Five Lakhs) for both principal and interest amount held by him / her.

However, this limit is applicable on every ownership type. For example, if you have a single holding savings account and another joint holding savings account, then the Rs. 5 lakh limit will be applicable to both accounts separately, even in the same bank.

Further, if you have a current account with the bank, it is also covered separately for the Rs. 5 lakh insurance.

Let’s say you have Rs. 5.5 lakh in you personal savings account (single holding), Rs. 3 lakh in the joint holding account and Rs. 10 lakh in the current account, then in case of bank default, this is how deposit insurance will work.

The insurance will pay you Rs. 5 lakhs (max) for the single holding account, Rs. 3 lakhs for the joint holding account and Rs. 5 lakhs (max) for the current account.

If I have money in different branches of the bank, how much insurance is applicable to me?

Across branches of the same bank, the amount is totaled and maximum Rs. 5 lakh deposit insurance is applicable to your account.

What if I have money in different banks?

For each bank, you will have a separate Rs. 5 lakh insurance limit applicable. This applies even if you have a single account holding in each of the banks.

How to know if my bank is insured by the DICGC or not?

Simple, check with the bank. While most banks are covered, it is good to find out if the coverage is active.

Can I increase my deposit insurance with the bank and increase it to say Rs. 10 lakhs per account type?

This is currently not possible. You can open different account types or accounts with different banks to get a higher cover overall.

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