Who Bears the Cost of Deposit Insurance Under DICGC?

Deposit insurance is RBI’s way to protect account holder’s savings in the bank. If a bank ever fails, deposit insurance helps ensure that the holders do not lose all their savings. In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides this protection. 

But who bears the cost of deposit insurance with DICGC? It is not the depositors!

Instead, banks pay a fee to DICGC to insure the money deposited by customers. This system helps people trust Indian banks and feel safe about their savings.

What Is Deposit Insurance?

Deposit insurance is a financial safety net that protects people’s money in banks. If a bank faces financial trouble and is unable to return depositors’ funds, deposit insurance ensures that they recover a portion of their money. In India, this protection is provided by DICGC, which plays a crucial role in securing bank deposits.

If you are wondering which deposits are insured by DICGC, it covers savings accounts, fixed deposits, current accounts and recurring deposits held with banks. However, it is important to note that this insurance comes with a coverage limit. Now, let us explore what is the deposit insurance coverage in India and how much protection it offers to depositors.

DICGC’S Role and Coverage Details

If a bank fails and cannot return depositor’s money, DICGC steps in to help. However, not all banks are covered. DICGC provides insurance for banks like commercial banks, small finance banks, regional rural banks and cooperative banks.

Curious about what is the maximum deposit amount insured by DICGC? Right now, DICGC covers up to ₹5 lakh per depositor in each bank. This means even if someone has ₹7 lakh in a bank and the bank fails, they will get only ₹5 lakh back. However, the government is currently planning to increase the insurance amount.

It is important to know that DICGC does not cover all financial institutions. Deposits in foreign banks, government deposits and deposits of central and state governments are not insured. Moreover, if a bank does not pay its insurance premium, its deposits will not be covered.

Who Bears the Cost of Deposit Insurance with DICGC?

Not the depositors but banks bear the cost of deposit insurance. They pay a fixed premium to DICGC to insure their customers’ deposits. The premium is ₹10 paise per ₹100 of deposits yearly or ₹5 paise per ₹100 every 6 months. If a bank fails to pay, its deposits will not be insured. This system makes banking safer and more trustworthy, which ensures depositors get protection without extra cost.

Premium Payments by Banks

Now that we know who bears the cost of deposit insurance with DICGC, we must also know that the banks must pay the premium on time. Banks must pay the premium either yearly or half-yearly to maintain coverage. However, if a bank fails to pay three consecutive premiums, DICGC may withdraw its insurance, leaving depositors unprotected. Banks must pay their premiums regularly to ensure depositors’ money remains safe.

Proposal for Government to Cover Increased Deposit Insurance Premiums

The All India Reserve Bank Employees Association (AIRBEA) has suggested that if the government raises the deposit insurance limit beyond the current ₹5 lakh, it should also cover the additional premium costs.

Currently, banks bear the cost of deposit insurance with DICGC, paying premiums to insure depositor funds. AIRBEA argues that since banks are already providing substantial returns to the government, using these higher returns to fund the increased premiums would prevent additional financial burdens on well-regulated banks.

This approach aims to enhance depositor protection without straining the banking sector. 

Final Word

DICGC protects depositors by insuring their savings in banks. Banks pay for this insurance and are the ones who bear the cost of deposit insurance with DICGC. Therefore, bank customers do not bear any extra cost. If a bank fails, DICGC returns up to ₹5 lakh to each depositor.

However, DICGC does not cover amounts above ₹5 lakh, so it is important to be aware of the limits. Checking if DICGC insures your bank is a smart step. Understanding how deposit insurance works helps depositors make better financial decisions and stay worry-free.

Book RBI-regulated bank FDs in no time with Stable Money and get up to ₹5 lakh insured by DICGC.

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