Explained: Who Protects Your Money If A Bank In India Fails Or Shuts Down?

Whether it's in savings accounts or bank FDs, most of us keep our money in various banks, right? For whatever hard earned money we have, banks play a key role in parking it and keeping it safe, especially in today¡¯s era of digitization, wherein people¡¯s reliance on cash is little.

But have you ever wondered what happens when a bank fails or shuts down? Who protects your money when a bank collapse occurs in India? Read on as we simplify this concept for you.

Who Protects Your Money If A Bank Fails?

bank failure dicgc insurance/indiatimes

DICGC (Deposit Insurance and Credit Guarantee Corporation), a subsidiary of the Reserve Bank of India, offers insurance cover for deposits opened with scheduled banks. Click here to see the list of banks insured under DICGC.

According to RBI, It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalyzed the introduction of deposit insurance in India. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961 and received the assent of the President on December 7, 1961. The Deposit Insurance Corporation commenced functioning on January 1, 1962.

Also Read: How A 116-year-old Indian Bank's Customers Became Unexpected Victims Of SVB Collapse

How Much Of Your Money Is Safe?

who protects money when banks fail dicgc/getty

As per DICGC¡¯s insurance program, cumulative bank deposits, which include fixed deposits, savings accounts, recurring deposits, and current accounts, are insured up to Rs 5 lakh per bank and depositor in the event of bank failures. Keep in mind that both the interest and the principal component are insured under DICGC.

Now, as the Rs 5 lakh cover per bank per depositor applies separately to the deposits held in each bank, you can distribute your FD investments, savings accounts, and other deposits across multiple banks in such a manner that their cumulative deposits with each bank do not exceed the Rs 5 lakh mark. This will ensure all your deposits in different banks remain covered under the insurance.

What Kind Of Bank Failures Are Covered By DICGC?

who protects money when banks fail dicgc/ndtv

In the event that a bank enters liquidation, DICGC is required to reimburse the liquidator for each depositor's claim amount up to Rs 5 lakhs within two months of the liquidator's claim list being received. Each insured depositor must receive a payout from the liquidator equal to their claim amount.

Within two months of receiving the claim list from the transferee bank or the Chief Executive Officer of the insured bank or transferee bank, as applicable, the DICGC pays the bank in question the difference between the full amount of deposits or the maximum insurance cover in effect at the time, whichever is less, and the amount received by him under the reconstruction or amalgamation scheme.

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