FD Insurance (DICGC) in India

Fixed deposits (FDs) are one of the most popular and safe investment options in India, offering guaranteed returns and stability. However, what happens if your bank fails or defaults on your FD? How can you protect your hard-earned money from such risks? This is where fixed deposit insurance comes in handy. 

What is Fixed Deposit (FD) Insurance?

Fixed deposit insurance is a system that protects your deposits in case of bank failures or defaults. All banks in India, including nationalised and private banks, are covered under deposit insurance by the Deposit Insurance and Credit Guarantee Corporation (DICGC). It is a wholly-owned subsidiary of the Reserve Bank of India (RBI). Deposits up to INR 5 lakh are insured if the bank defaults. This includes all deposits held by a person in a current account, savings account, fixed deposits and so on.

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Deposit insurance promotes financial inclusion by encouraging individuals to participate in the formal banking system. Knowing that their deposits are protected, people from all walks of life, including those from economically disadvantaged backgrounds, can access secure and reliable banking services.

What is DICGC?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a statutory corporation established in 1978 under the DICGC Act 1961. Its main objective is to provide insurance cover for deposits in banks and to guarantee credit facilities extended by banks to certain sectors. The DICGC is governed by a board of directors appointed by the RBI. The DICGC is funded by the premiums paid by the insured banks, and it’s investments.

The DICGC insures all deposits, such as savings, fixed, current, recurring, etc. deposits except the following types of deposits:

• Deposits of foreign Governments;
• Deposits of Central/State Governments;
• Inter-bank deposits;
• Deposits of the State Land Development Banks with the State co-operative bank;
• Any amount due on account of and deposit received outside India
• Any amount which has been specifically exempted by the corporation with the previous approval of the Reserve Bank of India

How Does FD Insurance Work?

In the event of a bank’s failure or bankruptcy, the DICGC ensures that your deposits, including both principal and interest amounts, are protected up to the maximum insurance limit. For example, if your principal amount is Rs 4,95,000 and accrued interest is Rs 4,000, the total insured amount would be Rs 4,99,000. However, amounts exceeding the insurance limit are not covered. This amount will also exclude any dues the depositor may have.

The deposit insurance is determined by adding together the funds in the same type of ownership (single or joint account) at the same bank. If funds are in different types of ownership, they would be separately insured. For example, if an individual has an FD of 5 lakhs with their spouse, an FD of 5 lakhs as a sole proprietor, as well as an FD of 5 lakhs with their child, they will be insured for each of these separately and receive a total of 15 lakhs as insurance coverage. However, if they have an individual account as well as a sole proprietorship account at the same bank, the funds from both of these accounts would be added and then insured accordingly; if the amount exceeds 5 lakhs, they will only be given coverage worth 5 lakhs.

The DICGC does not directly deal with the depositors of failed banks. The liquidator appointed by the RBI or the Registrar of Co-operative Societies is responsible for filing claims on behalf of the depositors and distributing the insurance money to them. The DICGC pays the claim amount to the liquidator within two months from the date of receipt of the claim list from him.

DICGC Rules for FD Insurance

The DICGC provides coverage for deposits across all banks in India. However, there are some rules and conditions that apply to FD insurance. Here are some of them:

• If the principal amount alone exceeds INR 5 lakhs, the accrued interest will not be insured.
• The insurance cover is available per depositor per bank. This means that if you have multiple accounts with different banks, each account will be insured separately up to INR 5 lakhs.
• All commercial banks, regional rural banks, and cooperative banks are covered under the DICGC scheme.
• All types of fixed deposits, including cumulative and non-cumulative deposits, are eligible for insurance coverage.
• The insurance coverage is available to individuals, Hindu Undivided Families (HUFs), sole proprietorships, partnerships, trusts, and other entities.
• The insurance cover is applicable only for deposits held in Indian currency. Deposits held in foreign currency are not insured.
• The insurance cover is effective from the date of deposit till the date of maturity or closure of the account.
• The insurance cover is not affected by the merger, amalgamation or reconstruction of banks as long as the new entity is registered with the DICGC.
• The DICGC can withdraw the insurance coverage from any bank if it fails to pay the premium or comply with the directions of the RBI or the DICGC.

Benefits of Fixed Deposit Insurance

Fixed deposit insurance offers several benefits to the depositors, such as:

• Financial Security: FD insurance provides depositors with financial security and peace of mind, knowing that their savings are protected in case of a bank failure or distress.
• Wide Coverage: The DICGC scheme covers a wide range of banks, including commercial banks, regional rural banks, and cooperative banks, ensuring that depositors in these institutions are protected.
• Easy Claim Process: In case of a bank failure, depositors can file claims with the DICGC to receive compensation. The claim process is straightforward and designed to be accessible for depositors.
• Stable Returns: FDs offer assured returns, making them an attractive investment option. With insurance coverage, depositors can enjoy these returns without worrying about the safety of their funds.
• Diversification: Encourages portfolio diversification and spreads deposits across different banks, thereby reducing your exposure to a single bank.

Conclusion

Fixed deposit insurance is a valuable feature that safeguards deposits in case of bank failures or defaults. It covers your deposits up to INR 5 lakhs per depositor per bank, including both principal and interest amounts. It is provided by the DICGC, a subsidiary of the RBI, and is funded by the premiums paid by the insured banks. It is applicable for all types of deposits, except for some exceptions, and is effective from the date of deposit till the date of maturity or closure of the account. It offers several benefits to the depositors, such as protection, peace of mind, diversification and credibility. Therefore, it is advisable to check whether the DICGC insures your bank and avail the benefits of fixed deposit insurance.

Frequently Asked Questions