Due to the changes in the banking sector, increasing internet transactions and income-related bank scams, it is natural for the common people to worry about the security of their money kept in banks. But despite such incidents in most countries, deposit insurance is provided to banks to maintain and strengthen customer confidence. Under this, cover is provided against the money deposited in the bank. Therefore, through this article, we are going to give you complete information about deposit insurance in India.
What is Deposit Insurance?
Deposit insurance is mainly offered to cover the loss of money deposited in the bank to a large extent. The main purpose of deposit insurance is to boost customer confidence in the banking system. FDs, RDs, savings and current account deposits in India are insured under the Insurance Scheme extended by Insurance and Credit Guarantee Corporation of India (DICGC). DICGC is a subsidiary of RBI. This ensures that depositors get a certain amount of their money back in case of bank scam, bank closure or any other situation. Depositors have to pay a premium to avail deposit insurance protection.
Bank deposit insurance in India
Deposit insurance was introduced at the time of the establishment of the statutory body DICGC in India. Deposit Insurance and Credit Guarantee Corporation of India is fully owned by RBI.
- Under this scheme, nominee banks have to pay a premium at the rate of 10 paise per 100 rupees.
- The total coverage amount per depositor is Rs 1 lakh under the scheme.
- DICGC creates deposit funds from premiums paid by insured banks and coupons received from investments in government securities.
- DICGC protects bank deposits in the event of bank breakdown, sinking or merging of the bank with other banks.
- The DICGC insures all deposits and pays a specific amount as compensation to each depositor in an emergency.
All commercial banks, including local banks and regional rural banks of all states and union territories, are required to make a nomination under this scheme. Except for cooperative banks of Dadra Nagar Haveli, Chandigarh, Meghalaya and Lakshadweep, all cooperative banks across the country are also covered under this scheme.
Who pays for this insurance?
Under the DICGC Act, insured banks pay 0.001% of their deposits to DICGC as a premium every year. If the insured bank sinks, gets scammed or merges with another bank, the DICGC is liable to pay a fixed sum to the depositors. This payment is made by an officially appointed liquidator within a specified period of time. Claims are usually settled within 2 months of making a claim.
What kind of banks are covered under this insurance?
All commercial and cooperative banks are covered under the DICGC scheme. But the plan also has some products. Below are the names of some banks, which are not covered under the deposit insurance scheme –
- Primary Agricultural Credit Societies (PACS)
- Meghalaya to Corporate Bank
- Corporate Banks of Chandigarh, Dadra and Nagar Haveli and Lakshadweep
What happens to depositors’ money when the bank is closed or insolvent?
In the event of the bank’s closure or bankruptcy, the depositors become eligible to receive the cover amount of the deposit insurance scheme from the Deposit Insurance and Credit Guarantee Corporation of India. Under this, each depositor is given Rs 1 lakh as compensation.
How to increase the deposit insurance cover?
DICGC insures all types of deposits including fixed deposits, recurring deposits, savings and current deposits. You can increase your deposit insurance cover by diversifying your deposits, such as depositing your amount in several banks and depositing it in a personal and joint account. If you have deposited your money in multiple branches of the same bank, you will get a maximum cover of 1 lakh rupees, because before determining the DICGC deposit insurance, all the money held by the depositor in different branches of the same bank adds up.
Money held in separately owned banks is insured separately. If you have separate accounts in two different banks and both are bankrupt or closed, then you will be provided separate cover for both. So if you want to get more and more money in future in such a situation, then try to divide your money into parts and keep it in different banks.