In India, people generally rely on bank accounts to keep their hard-earned money safe. Savings accounts, fixed deposits, and recurring deposits are considered the safest investment options. But when news breaks of a bank failing or going bankrupt, the biggest question in depositors’ minds is whether their money will be safe. To address this concern, the Reserve Bank of India (RBI) and its subsidiary, the Deposit Insurance and Credit Guarantee Corporation (DICGC), play a crucial role.
RBI’s Role in Case of Bank Failure
When a bank’s financial situation deteriorates and it is unable to repay its customers, the RBI first increases its monitoring of that bank. If necessary, a moratorium is imposed on the bank, allowing account holders to withdraw only limited amounts. In many cases, the RBI decides to merge the bank with a stronger bank to protect the interests of depositors. If no other option remains, the bank is declared bankrupt.
What is DICGC and How Does it Work?
DICGC is a subsidiary of the Reserve Bank of India that provides insurance cover for deposits in banks. Every bank has to pay an insurance premium to DICGC on its depositors’ deposits. This fund is used to repay account holders in case of a bank failure. This system is designed to ensure that the savings of ordinary people are not completely jeopardized.
How Much Money is Protected in Case of Bank Failure?
According to RBI rules, DICGC provides insurance cover of up to a maximum of Rs. 5 lakh per depositor per bank. This includes savings accounts, fixed deposits, recurring deposits, and current accounts. This limit is per depositor and per bank. This means that if a person has a total deposit of up to Rs. 5 lakh in a single bank, they are guaranteed to get the full amount back if the bank fails.
According to data as of March 2025, approximately 97.6 percent of bank accounts in the country are covered under this insurance. This means that, in terms of the number of accounts, most depositors are considered safe.
What are the risks for those with large deposits?
Although the insurance cover is quite comprehensive in terms of the number of accounts, the situation is slightly different when it comes to the total amount of deposits. Only about 41.5 percent of the country’s total bank deposits are covered by insurance. This means that those with more than ₹5 lakh in their accounts face a risk to their additional funds. In such a situation, the process of recovering the money by selling the bank’s assets is initiated, which can take a considerable amount of time.
Where do depositors get their money from?
When a bank becomes completely insolvent, the DICGC pays eligible depositors up to a maximum of ₹5 lakh from its insurance fund. This payment is made according to a defined process after the bank’s failure. Since this fund is already in place, small depositors do not have to fear losing their entire savings.