What is deposit insurance?

Posted By:
Subscribe to GoodReturns

What is deposit insurance?
Deposit insurance is the cover against any kind of risk for the depositors' deposits held by the different banks in various forms such as term deposits, recurring or saving deposits. In India, as many as 2,199 banks are insured by the Deposit Insurance and Credit Guarantee Corporation or DICGC which is the main entity providing insurance for bank deposits. With it, nearly each and every commercial bank that includes cooperative banks, RRBs as well as foreign bank branches operating in India are insured.

So, with the deposit insurance in place, investors and depositors in bank need not to worry. Moreover for such an insurance, cost of the insurance or the premium amount which is a marginal sum is borne by the insured bank. This thus implies an amount towards the premium for such an insurance is not deducted from the depositors deposit money.

However, deposits of foreign governments; central or state governments; Inter-bank deposits; Any amount due on account of any deposit received outside India; any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India; and Deposits of the State Land Development Banks with the State co-operative bank are not covered under the deposit insurance by the DICGC.

Cases when the deposit insurance applies and the depositor secures the invested sum together with the interest

For all the restructuring the bank may witness including amalgamation, reconstruction or merger or other events such as liquidation or cancellation of license, DICGC is liable to pay to the depositor an amount upto Rs. 1,00,000 including both the principal and interest.

It must be remembered though that amount to the depositor is paid back by the authority after setting off for all the dues i.e. after deducting any outstanding fees or charges. Furthermore, DICGC is accountable to pay to the depositor in case of default by the bank within a period of two months from the date of receipt of claim for the deposit.

Other important points concerning deposit insurance for deposits payable in India

In case deposits are held in different branches of the same bank, a maximum cover of Rs. 1 lakh as a whole is provided.

In case deposits are maintained in different banks, separate cover amounting to a maximum of Rs. 1,00,000 is provided for deposits with each of the bank.

Information courtesy : RBI website

Story first published: Tuesday, March 25, 2014, 15:09 [IST]
Please Wait while comments are loading...
Company Search
Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'