RBI’s Role in Strengthening DICGC Insurance in FD for Investor’s Safety

After the recent case of bank failure at Mumbai-based New India Co-operative Bank, DICGC has become the primary source of safety and assurance for depositors. The reality is that it is not uncommon for banks to face unforeseen circumstances, but what about the money that you are saving diligently for the future? That’s where DICGC comes in. 

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India, which provides insurance coverage for deposits made across Indian banks. Read this article till the end to know all about DICGC insurance in FD and other aspects concerning it.

What Is DICGC Insurance?

The DICGC full form stands for Deposit Insurance and Credit Guarantee Corporation. Ever since coming into existence on July 15th 1978, the corporation has built trust among depositors and borrowers of a bank by ensuring financial security.

DICGC provides an insurance cover of ₹5 lakh for every depositor in banks. The given insurance is both on the interest and principal amounts. Banks cover this cost of insurance themselves by paying premiums to the DICGC. This means when you avail a fixed deposit at a bank, you get a DICGC backed-up insurance coverage on your sum investment. 

Benefits of DICGC Insurance in FD 

Here is a list of benefits that people can avail upon getting DICGC insurance in FD:

• Provides Financial Stability: The coverage of DICGC provides financial stability to depositors when they invest in banks. They also protect the rights of depositors as well by ensuring a backup if any bank ends up on moratorium.
• Generates Confidence Among Depositors: A DICGC insurance on term deposits like FD boosts the confidence of depositors who invest in lesser-known banks. They feel safe when guaranteed with sum returns on their made investment in FDs.
• Protection Against Failure of Banks: Even if a bank fails or goes on moratorium, DICGC provides assured insurance coverage of up to ₹5 lakh. This serves as a security and protection of consumer funds.

How Does DICGC Deal with FD Investors When Banks Fail?

In the event of a bank liquidation or failure, the DICGC does not directly deal with the depositors. They pay the claim amount (of depositor) to the liquidator (bank), of up to ₹5 lakh. Within two months of receiving the receipt of the claim from the liquidator, DICGC rolls out the payment to the banks. 

When a bank merges with another bank, the DICGC pays the transferee bank with the difference between the insurance limit cover and the full amount of the deposit. This payment is given within a period of two months after receiving the claim list of depositors from the transferee bank.

For instance, a lot of small state-based banks faced the brunt of the COVID-19 pandemic time and had to shut down. The DICGC during such instances paid sum insurance of up to ₹5 lakhs to all the depositors. 

One such bank was the Maharashtra-based Karad Janata Sahakari Bank. The RBI stated that the cooperative bank lacks adequate capital and earning prospects. As a result, it does not comply with Section 11(1) and Section 22(3)(d), read with Section 56 of the Banking Regulation Act, 1949.

The DICGC then paid a claim of ₹329.76 crore to 39,032 depositors. This was just one instance of DICGC providing insurance to depositors upon their bank failure. 

How Much FD Investment Is Insured by DICGC? 

The DICGC insures both the interest and principal amount of up to ₹5 lakh. For instance, if an individual has an account with a principal sum of ₹4,95,000 with an additional accrued interest of ₹4,000, the total insured amount would be ₹4,99,000. 

However, if such was the case that the principal amount was ₹5 lakh, then the accrued interest would not be insured. This is because the DICGC insurance limit is up to ₹5 lakh. 

Final Word

Understanding DICGC’s insurance coverage empowers depositors to make informed FD investment decisions while boosting their confidence in banking security. As of March 31, 2022, DICGC sanctioned claims worth ₹3,455 crore to 2,64,142 depositors from 22 urban cooperative banks placed under AID by the RBI. Recognizing its vital role in depositor protection and banking reforms, the Prime Minister, Union Finance Minister and RBI Governor addressed depositors and distributed cheques at a special event on December 12, 2021, in New Delhi.

Did you know that the FDs offered at our Stable Money platform have DICGC insurance? This means when you book FDs through our app, you get the DICGC insurance in FD for up to ₹5 lakh. What’s more is that with the Stable Money app, you can avail an interest of up to 9.5% along with a convenient customer service that works 24x7.

Read More About DICGC:
What is DICGC Insurance & Limit
Which Banks Are Not Covered Under DICGC: A Detailed Guide
How to Claim Your Money Safely Through the DICGC Claim Process?
A Complete Guide to DICGC Insured Banks List & Deposit Protection
Know All About the Deposit Insurance System in India
Benefits of Raising Deposit Insurance Limits in the Light of the Recent Incident