Deposit Insurance Coverage
Deposit insurance coverage in India refers to the guarantee provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) that protects depositors' funds up to a specified per-depositor, per-bank limit if the bank fails, currently set at Rs 5 lakh.
The DICGC, a wholly owned subsidiary of the RBI, was established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Its primary mandate is to protect small depositors from losses arising from bank failures by maintaining an insurance fund built from premiums collected from insured banks.
For decades the coverage limit was Rs 1 lakh, unchanged since 1993. The limit's inadequacy became starkly evident in September 2019 when the Punjab and Maharashtra Co-operative (PMC) Bank was placed under RBI restrictions, limiting depositor withdrawals to initially Rs 1,000 (later gradually raised). PMC Bank had an estimated 137,000 depositors, many of whom — particularly senior citizens who held retirement savings in the co-operative bank — had balances well above Rs 1 lakh. The PMC crisis galvanised public demand for higher deposit insurance and accelerated legislative action.
In February 2020, Finance Minister Nirmala Sitharaman announced an increase in the insurance limit to Rs 5 lakh, effective from February 4, 2020. This five-fold increase brought India closer to international standards: the US Federal Deposit Insurance Corporation (FDIC) insures up to $250,000, and the European Union mandates €100,000 coverage per depositor per institution. At Rs 5 lakh, DICGC coverage was estimated to protect the full balance of approximately 98% of all deposit accounts, though in value terms the protected share was lower because large-balance accounts (the remaining 2%) hold a disproportionate share of total deposits.
The DICGC (Amendment) Act, 2021 introduced a further significant change: a time-bound repayment mechanism. In the event of a bank placed under moratorium or liquidation, depositors were entitled to receive their insured amount within 90 days. This was a structural improvement over the prior system, under which depositors could wait years during prolonged liquidation proceedings to receive insurance payouts. The 90-day provision was triggered for the first time for Unity Small Finance Bank depositors (who assumed PMC deposits) under a structured resolution.
Premium structure: All commercial banks, small finance banks, payments banks, co-operative banks, and regional rural banks are mandatorily required to register with DICGC and pay an annual premium currently set at 12 paise per Rs 100 of assessable deposits. The insurance fund's adequacy ratio (fund size as a percentage of insured deposits) is monitored as a measure of systemic resilience.