Deposit Insurance in India (DICGC) Explained

Deposit insurance in India is a statutory safety net, run by the Deposit Insurance and Credit Guarantee Corporation (DICGC), that repays a depositor up to Rs 5 lakh per bank if an insured bank fails or is wound up. The DICGC is a wholly-owned subsidiary of the Reserve Bank of India (RBI), and the cover applies automatically to the savings, fixed, current and recurring deposits held in insured commercial, cooperative and regional rural banks, without the depositor having to apply or pay anything.

The scheme exists to protect small depositors and to maintain public confidence in the banking system. This explainer describes how the DICGC was formed, what it covers and excludes, how the premium works, how a payout is processed after the 2021 reform, and where the scheme sits among India’s other financial safeguards. It is a factual description of the law and not financial advice; last reviewed on 8 October 2026.

Key Takeaways

• The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India and has operated in its current form since 1978.
• Deposit insurance in India covers up to Rs 5 lakh per depositor per bank, and this limit includes both the principal amount and the interest accrued on it.
• Savings, fixed, current and recurring deposits in insured commercial banks, small finance banks, payments banks, regional rural banks and cooperative banks are all covered automatically.
• Banks, and not depositors, pay the DICGC insurance premium, which is calculated on the bank’s assessable deposits.
• Under the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, the DICGC must pay depositors of a restricted bank their insured amount within 90 days.
• Investments such as shares, mutual funds, bonds and debentures are outside deposit insurance, as are deposits of the government and inter-bank deposits.

What is deposit insurance in India and why does it exist?

Deposit insurance in India is a guarantee, backed by a statutory corporation, that a depositor will recover a fixed maximum amount from the DICGC even if the bank holding the money collapses. Without such a scheme, ordinary savers have no practical way of judging the soundness of a bank, so a single rumour could trigger a run in which many depositors withdraw funds at once.

The Indian rationale is closely tied to the banking structure. India has a large number of small savers who keep money in banks as their main financial asset, and a significant share of the banking network consists of small cooperative banks that are less diversified than large commercial banks. Insurance converts a bank failure from a personal catastrophe for small depositors into a contained, administratively managed event.

Deposit insurance also supports financial stability in a wider sense. When depositors know that a defined portion of their savings is protected, they are less likely to panic at the first sign of trouble in a single institution. This reduces the chance that stress at one bank spreads to healthy ones.

How did the DICGC come into existence?

The DICGC came into existence in 1978 when the Deposit Insurance Corporation, set up in 1962, was merged with the Credit Guarantee Corporation of India, set up in 1971. The enabling law is the Deposit Insurance and Credit Guarantee Corporation Act, 1961, which was passed after a series of bank failures in the 1950s and early 1960s highlighted the need for a depositor protection mechanism.

India was among the early countries in the world to introduce a national deposit insurance system, starting in 1962. The merger of 1978 combined two functions under one roof: insuring deposits and guaranteeing credit extended by banks to certain categories of small borrowers. Over time the credit guarantee side lost its importance, and the corporation is today known almost entirely for deposit insurance.

Key milestones in the scheme

The history shows a gradual pattern. Coverage was originally set at a very small sum and was raised only a handful of times, which is why the 2020 revision was described as a major change at the time.

Who runs the DICGC?

The DICGC is run by a board of directors chaired by a Deputy Governor of the Reserve Bank of India, and the RBI owns the whole of its capital. Because it is a fully owned subsidiary, the corporation works in close coordination with the central bank, which also regulates the banks the DICGC insures.

The board includes members nominated by the RBI and the central government. The corporation maintains a Deposit Insurance Fund, which is built from the premiums paid by banks, the interest earned on its investments and recoveries made from failed banks. This fund, and not the government’s budget, is the first source from which payouts are made.

The corporation does not supervise banks day to day. Supervision, licensing and resolution decisions rest with the RBI, while the DICGC concentrates on assessing premiums, maintaining the fund and settling claims when a bank is restricted, amalgamated or liquidated.

What does deposit insurance in India cover?

Deposit insurance in India covers the money held in savings, fixed (term), current and recurring deposit accounts, up to Rs 5 lakh per depositor in each insured bank. Both the principal and the accumulated interest are counted toward this limit.

Which banks are insured?

Every commercial bank licensed by the RBI, including the Indian branches of foreign banks, is insured. The same applies to small finance banks, payments banks and local area banks, as well as regional rural banks (RRBs). Cooperative banks, including state cooperative banks, district central cooperative banks and urban cooperative banks, are also covered provided the relevant state has amended its cooperative law to give the RBI the necessary powers of regulation over them.

How is the limit of Rs 5 lakh applied?

The limit of Rs 5 lakh applies to the total of all of a depositor’s accounts, across all branches, in the same bank and in the same capacity. For example, if a person holds a savings account, a fixed deposit and a recurring deposit in three different branches of one bank, all three are added together and only the first Rs 5 lakh is insured.

Deposits held in different banks are insured separately. A person with accounts in two insured banks is therefore covered up to Rs 5 lakh in each, subject to the rules for that bank.

What is meant by “different capacity or right”?

Deposits held in different capacities or rights are insured separately in the same bank. An individual account, a joint account with another person and an account held as a trustee are treated as different capacities. A sole account of Rs 5 lakh and a joint account in the names of two persons can therefore be separately insured, though each joint holder’s share is calculated according to the DICGC rules.

What is not covered by deposit insurance?

Deposit insurance does not cover investments in shares, mutual funds, bonds or debentures, and it also excludes certain categories of deposits listed in the DICGC Act. The cover is for deposits only, and the DICGC does not insure the value of any market-linked investments even if they are sold through a bank branch.

The following categories are generally excluded from cover:

• Deposits of foreign governments.
• Deposits of the central government and state governments.
• Inter-bank deposits, that is, deposits placed by one bank with another.
• Deposits of state land development banks with their respective state cooperative banks.
• Any amount due on account of a deposit received outside India.
• Any amount specifically exempted by the corporation with the prior approval of the Reserve Bank of India.

Money kept in Non-Banking Financial Companies (NBFCs), post office savings schemes, or in the form of insurance policies and mutual fund units is also outside the DICGC framework. Post office deposits are backed separately by the Government of India, while NBFC deposits depend on the company’s own financial health and on regulation by the RBI.

Who pays the premium for deposit insurance?

Insured banks pay the premium for deposit insurance, and depositors pay nothing directly. The premium is charged as a flat rate on the bank’s assessable deposits, expressed as a small number of paise for every Rs 100 of deposits, and it is paid to the DICGC in two half-yearly installments.

The corporation can revise the rate with the previous approval of the Reserve Bank of India, and the rate has risen in steps over the decades as cover limits increased. Banks are not allowed to recover the premium from their depositors by levying separate charges for the insurance.

India has historically used a flat premium that is the same for all banks, irrespective of how risky each bank is. Many countries have moved toward risk-based premiums, in which weaker banks pay more. The DICGC Act has long contemplated a shift to such a system, and discussions about a risk-based framework appear in policy documents, but the flat-rate approach remains the foundation of the scheme.

How does a deposit insurance claim work after the 2021 reform?

Under the 2021 amendment, the DICGC has to pay the insured amount to the depositors of a bank within 90 days of the date on which the RBI places that bank under an all-inclusive directions order, commonly called a moratorium. This is a major departure from the earlier position, where depositors often waited for years until the bank’s liquidation was complete.

The amendment was passed by Parliament in 2021 and was widely seen as a response to episodes of cooperative bank stress, including the restrictions placed on the Punjab and Maharashtra Co-operative Bank in 2019, in which many depositors found their money frozen for a long period. The reform links the payout trigger to the restriction itself and not to the final liquidation.

The 90-day timeline

The money paid in this way is an interim measure to give immediate relief. If the bank is subsequently liquidated or merged, the usual DICGC claim and recovery rules apply, and the corporation can recover the sum from the liquidator out of the bank’s assets.

What happens when an insured bank is merged or liquidated?

When an insured bank is merged with another bank, depositors usually continue to hold their accounts with the acquiring bank, and the DICGC pays only if the scheme of amalgamation does not fully protect them. When a bank is liquidated, the DICGC pays each depositor’s insured sum to the liquidator, who distributes it to depositors, and the corporation then stands as a creditor for the amount it has paid.

In a liquidation, depositors with balances above the insured limit become ordinary creditors for the uninsured portion. They may recover part of this amount from the liquidator over time if the bank’s assets are sufficient, though the process can be slow. The Reserve Bank can also cancel the bank’s licence, which is the step that usually precedes liquidation.

Many failing banks in India have been resolved through amalgamation instead of liquidation, with a stronger bank taking over the weaker one. This option usually protects all depositors fully, which is one reason why DICGC payouts have historically been concentrated in the cooperative sector and have been rare in the commercial banking sector.

Is deposit insurance different from a government guarantee?

Deposit insurance by the DICGC differs from a government guarantee because it is funded by premiums from banks and limited to a stated amount per depositor, while a government guarantee would be an explicit sovereign promise to pay in full. The DICGC Act does not oblige the central government to make good the corporation’s losses automatically, although the Deposit Insurance Fund can be supplemented through borrowing from the RBI if needed.

In practice, the large public sector banks in India are owned by the government, and the RBI has a long-standing record of arranging rescues instead of allowing large banks to fail. That informal pattern is not a legal guarantee, and the formal protection that any depositor can rely on is the DICGC cover.

Comparison with other savings protection

How can a depositor check or plan around the insurance limit?

A depositor can check whether their bank is covered by looking at the list of insured banks on the DICGC’s public website or by asking the bank, since every insured bank is required to display information about the cover in its branches. Banks are expected to inform depositors about the insurance, including the limit, through a notice in the branch or on their passbooks.

As a matter of description, the following are the points that determine how much of a person’s money is covered:

• The cover is counted per bank, not per branch, so all branches of one bank are added together.
• Principal and interest together are counted when the limit is applied.
• Accounts held in different capacities, such as single and joint, are insured separately.
• Deposits in different insured banks are insured separately from each other.

The scheme does not require any registration. This is an important feature: the insurance is automatic, and the depositor is not asked to opt in.

What are the criticisms and limitations of the scheme?

The main limitations of deposit insurance in India are that the cover is relatively small compared with the large balances held by some depositors, that the premium is not risk-based and that the Deposit Insurance Fund is modest in comparison with total insured deposits. The fund ratio, which compares the fund with the insured deposits, is a metric the corporation monitors, and it is designed to be sufficient for the failures that have historically occurred rather than for a simultaneous collapse of several large banks.

Another concern frequently raised by economists is moral hazard. When depositors know that their funds are protected, they may have less reason to look at a bank’s financial health, and weaker banks may offer higher interest rates to attract money. A risk-based premium and strong supervision by the RBI are the usual answers to this concern.

Supporters of the scheme point out that the Rs 5 lakh limit fully covers the overwhelming majority of individual deposit accounts by number, even though a smaller share of the total value of deposits is insured. This is the argument for focusing the scheme on small depositors, who are the least able to monitor a bank or to bear losses.

Bottom Line

Deposit insurance in India, delivered through the DICGC, protects up to Rs 5 lakh of each depositor’s money in each insured bank and is paid for by the banks themselves. Since the 2021 amendment, the insured amount has to reach depositors within 90 days of a bank being restricted, which makes the scheme considerably more responsive than it used to be.

Frequently Asked Questions

What is the DICGC?

The DICGC is the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the Reserve Bank of India. It was formed in 1978 by merging the Deposit Insurance Corporation and the Credit Guarantee Corporation of India. Its main function today is to insure bank deposits and pay depositors when an insured bank fails.

How much of my bank deposit is insured in India?

Up to Rs 5 lakh per depositor per bank is insured in India, and this includes both principal and interest. The limit was raised from Rs 1 lakh in February 2020. Accounts held in different banks, or in different capacities such as single and joint, are insured separately.

Do I have to pay for deposit insurance?

No, depositors do not pay for deposit insurance. The insured bank pays the premium to the DICGC, calculated on its assessable deposits, and it is not allowed to charge the depositor separately for it. The cover is automatic for all eligible accounts.

Which deposits are not covered by the DICGC?

Deposits of foreign governments, the central and state governments, and inter-bank deposits are not covered. Investments such as shares, mutual funds and bonds are also outside deposit insurance, since they are not deposits. Money kept with NBFCs or in post office schemes does not fall under the DICGC.

How quickly does the DICGC pay depositors now?

The DICGC must pay depositors within 90 days of the RBI placing a bank under all-inclusive directions. This timeline came from the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021. Before this reform, depositors often waited for years until a bank’s liquidation was completed.

Are cooperative banks covered by deposit insurance in India?

Yes, cooperative banks are covered, including state cooperative banks, district central cooperative banks and urban cooperative banks. Coverage depends on the state having amended its cooperative law to give the RBI the required powers. Primary agricultural credit societies, which are not banks in this sense, are not insured by the DICGC.

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