In the case of a bank failure, bank deposits are going to be insured up to Rs 5 lakh. Earlier, the limit was up to Rs 1 lakh set in 1993. The increase in the limit of deposit insurance is as per the Budget 2020 proposals and the Deposit Insurance and Credit Guarantee Corporation (DICGC) has already implemented it from February 4, 2020. The coverage increase is applicable to all insured banks, which would be placed under liquidation or amalgamation or a merger with effect from February 04, 2020.
DICGC has sent a communication to all the banks about the increase in the limit and also on the increase of the premium for insuring such deposits. As per the communication, DICGC states – "The premium will be raised to 12 paise per Rs 100 of assessable deposits per annum from the half-year beginning April 1, 2020, onwards."
The annual premium will be increased from 10 paise to 12 paise for every Rs 100 of the insured amount of deposit, a 20 per cent hike in the premium. The banks have to pay the premium to DICGC.
The deposit insurance of Rs 5 lakh is applicable on per depositor per bank basis and, therefore, is the aggregate of the amount across branches of the same bank. The deposits spread across different banks will, therefore, be insured, separately. Someone who has a higher amount to save in bank deposits may diversify across banks to enjoy deposit insurance feature across banks.
The bank deposits include money lying in the depositor’s savings account, current account, recurring deposit, bank fixed deposit etc are covered by DICGC. Importantly, the limit of Rs 5 lakh includes principal invested and the interest earned on the capital.
The DICGC is a wholly-owned subsidiary of the Reserve Bank of India and in case of a bank failure, the DICGC provides protection to bank deposits that are payable in India.
Banks are required to compulsorily enrol for the deposit insurance scheme and no bank can withdraw from it. However, as per the rules, DICGC may cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. In such a case, DICGC needs to notify this decision to the general public through newspapers.