Explained: Who Protects Your Money If A Bank Fails Or Shuts Down In India?
We all have bank accounts, right? Be it a savings account, current account or fixed deposit, keeping our money in banks and using it for day-to-day transactions is common.
But what if that bank fails and shuts down? Remember the collapse of PMC Bank and Laksmi Vilas Bank a few years ago? Even Yes Bank’s crisis was something that gave India’s banking industry a big scare in 2020.
So what really happens to your money in case a bank faces a dead end? Who protects your money and to what extent? Read on as we explain it all in this blog.
Who Protects Your Deposited Money If A Bank Fails?
DICGC (Deposit Insurance and Credit Guarantee Corporation), a subsidiary of the Reserve Bank of India, offers insurance cover for deposits opened with scheduled banks.It was founded in 1978, and falls under the jurisdiction of the Ministry of Finance.
When And Why Did The RBI Create DICGC?
It was more than six decades ago in 1960 when the failure of two banks (Laxmi Bank and Palai Central Bank) prompted the Reserve Bank of India to first introduce ‘Deposit Insurance Corporation’ (DIC) in 1962.
Only the USA had introduced the concept of deposit insurance before India at that time. Then came the year 1971, when another institution named ‘Credit Guarantee Corporation of India Ltd.. CGCI was established.
While DIC’s aim was to protect depositors, ensure financial stability, instill confidence in the banking system and help mobilise deposits, the CIC, on the other hand, aimed to persuade banks to make credit available to the neglected sectors and weaker sections.
Eventually in 1978, the DIC and the CGCI were merged to form the DICGC (Deposit Insurance and Credit Guarantee Corporation). The aim behind this merger was the integration of functions of these two organizations. Hence, DICGC was born in that year, 1978.
How Much Of Your Deposited Money Is Insured By Dicgc?
As per DICGC’s insurance program, your bank deposits are insured up to INR 5 lakh, per bank and depositor, in the event of bank failures.
Both the interest as well as the principal component are insured for the following deposits:
- Fixed deposits
- Savings accounts
- Recurring deposits
- Current accounts
Are All Banks Insured By DICGC? Who Pays For This Insurance?
The deposit insurance scheme is compulsory and no bank can withdraw from it. DICGC covers the following:
- All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC.
- All State, Central and Primary cooperative banks, also called urban cooperative banks
As far as the deposit insurance premium is concerned, it is borne entirely by the insured bank, and it cannot be passed on to the depositors.
If the insured banks fail to pay the half-yearly deposit insurance premium for a three consecutive periods, DICGC may cancel its registration. DICGC’s report mentions that the total premium collected by DICGC from these banks stood at INR 26,764 crore, and the total claims settled by DICGC during FY24-25 stood at INR 476 crore.
In What Circumstances Is The DICGC Liable To Cover The Bank Deposits?
DICGC becomes liable to pay the insured amount in the following cases:
- Bank goes into liquidation
- Bank is reconstructed
- Bank is amalgamated/merged with another bank
- Bank is placed under certain RBI directions
As per Section 16 of the DICGC Act, DICGC is liable to settle deposit insurance claims of insured banks within 90 days, subject to submission of a list showing outstanding deposits of each depositor by the insured bank.
The ‘Too Big To Fail’ Banks Listed By RBI
Every year, the RBI releases its list of ‘domestic systemically important banks’(D-SIBs). Commonly perceived as the ‘too big to fail banks’, the current list includes HDFC Bank, SBI and ICICI Bank. Simply put, D-SIBs are banks whose failure or distress could trigger a broader financial crisis in the banking industry, and even threaten the stability of the entire financial system.
Conclusion
Bank failures are rare in India, but not impossible. The DICGC’s INR 5 lakh cover ensures that your money isn’t entirely at risk even if your bank shuts down. However, diversifying across multiple banks and monitoring financial news can further safeguard your savings.
Stay informed, stay protected — Grip Invest helps you explore smarter and safer investment options beyond traditional banking.
FAQs On Bank Failures
1. Can I claim more than INR 5 lakh if I have multiple accounts in the same bank?
No. The INR 5 lakh insurance limit applies per depositor per bank, regardless of how many accounts you hold there.
2. What if I have deposits in two or more different banks?
You’re insured separately for up to INR 5 lakh in each bank because the coverage applies per bank, not per depositor across all banks.
3. Does DICGC cover NBFCs or payment banks?
No. NBFCs, payment banks, and mutual funds are not covered under DICGC insurance.
4. How long does it take to get the insured money back?
DICGC must settle valid claims within 90 days after the RBI cancels a bank’s license or orders liquidation.
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