The RBI's FAQ on deposit insurance gets more traffic than almost any other page on its website. The questions are basic — Is my bank insured? How much is covered? What if I have accounts at multiple branches? — and the answers matter to every depositor in India.
This article answers those questions through the regulatory framework: the DICGC Act, the deposit regulations, the co-operative bank resolution framework, and the lessons of the PMC Bank crisis.
How Much Is Covered: Rs 5 Lakh
Every depositor in every insured bank is covered up to Rs 5,00,000 — principal plus interest combined. This covers savings accounts, fixed deposits, current accounts, and recurring deposits. The DICGC Act and its amendments define the scope — and what falls outside it.
The DICGC (since withdrawn) insures "each depositor in a bank up to a maximum of Rs 5,00,000 for both principal and interest." The Rs 5 lakh limit was raised from Rs 1 lakh in February 2020 — the first increase in twenty-seven years. Why twenty-seven years? Because deposit insurance is funded by premiums that banks pay — higher cover means higher premiums, and the banking industry resisted increases. The PMC Bank crisis broke that resistance: when depositors with life savings above Rs 1 lakh found themselves locked out of their own money, the political pressure to raise the cover became irresistible. Parliament acted within months.
How effective is the Rs 5 lakh coverage? When the RBI cancelled the licence of Karad Janata Sahakari Bank (PR_50770), the press release stated:
"On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 5,00,000 from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as per usual terms and conditions. More than 99% of the depositors of the bank will get full payment of their deposits from DICGC."
That 99% figure is consistent across licence cancellations — because most depositors at small co-operative banks hold less than Rs 5 lakh. The cover protects retail depositors; it doesn't protect institutional depositors or high-net-worth individuals.
The financial restructuring framework (Financial restructuring of UCBs) had already established the principle: "The interest of small depositors has to be protected in full." What changed was the definition of "small" — from Rs 1 lakh to Rs 5 lakh.
What's NOT Covered
- Deposits of foreign governments
- Deposits of Central/State governments
- Inter-bank deposits
- Deposits received outside India
- Any amount recoverable by the bank from the depositor (set-off rights)
Multiple Branches, One Coverage
All deposits at different branches of the same bank are aggregated. If you have Rs 3 lakh at the main branch and Rs 4 lakh at another branch, your total is Rs 7 lakh — and only Rs 5 lakh is insured.
But deposits at different banks are separately insured. Rs 5 lakh at SBI and Rs 5 lakh at HDFC Bank means Rs 10 lakh of total coverage.
Same Person, Different Capacities
One person holding accounts in different capacities gets separate coverage for each capacity. Your individual savings account, your joint account, your account as a guardian, and your account as a partner in a firm — each gets up to Rs 5 lakh coverage because the "capacity and right" are different.
Who Pays?
The bank pays the premium, not the depositor. The deposit insurance scheme is compulsory — no bank can withdraw from it. If a bank fails to pay premiums for three consecutive periods, DICGC can cancel its registration.
When Does DICGC Pay?
The 2021 amendment to the DICGC Act mandated interim payments within 90 days of a bank being placed under moratorium, merger, or reconstruction. Before this amendment — as PMC Bank depositors learned — the wait could be years.
The process: the liquidator (in case of winding up) or the transferee bank (in case of merger) prepares a depositor-wise claim list. DICGC pays within two months of receiving the list. This process was established under the DICGC Act, 1961 (since withdrawn) — amended in 2021 to add the 90-day interim payment mandate that didn't exist when PMC Bank depositors were locked out. Depositors don't deal with DICGC directly — the money flows through the liquidator or the acquiring bank.
Which Banks Are Covered?
All commercial banks including foreign bank branches in India — as defined under the Banking Regulation Act, 1949. All regional rural banks. All co-operative banks in states that have signed the MoU with the RBI. Local area banks. Small finance banks. Payments banks.
The co-operative bank article covers the MoU requirement — not all state co-operative banks were covered historically, because DICGC coverage required state government agreement.
What Happens When a Bank Is Placed Under Moratorium?
The most severe scenario: the RBI applies to the Central Government under Section 45 of the Banking Regulation Act to impose a moratorium. When Yes Bank was placed under moratorium (PR_49476), the RBI stated:
"The Reserve Bank came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank's depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949."
Why was Yes Bank different from PMC? Because Yes Bank was a scheduled commercial bank with millions of depositors — the systemic risk demanded rapid resolution. The RBI announced a reconstruction scheme (PR_49479) within days, with SBI leading a consortium that injected capital. The moratorium lasted 13 days. PMC Bank's All-Inclusive Directions (PR_50396) dragged on for years because the bank's "entire net worth" had been "wiped out" and "steep erosion in deposits" made reconstruction commercially unviable.
The lesson: moratorium resolution speed depends on whether any investor finds the bank worth saving. Systemic banks get rescued. Small co-operative banks get liquidated.
The PMC Lesson
When Punjab & Maharashtra Co-operative Bank was restricted in September 2019 with withdrawals initially capped at Rs 1,000, the Rs 1 lakh DICGC cover was wholly inadequate for most depositors. The regulatory autopsy traces how every compliance layer failed.
The twin reforms that followed — raising cover to Rs 5 lakh and mandating 90-day interim payments — directly addressed what PMC depositors experienced. The Banking Regulation Amendment Act, 2020 also gave the RBI power to supersede co-operative bank boards and initiate resolution — so the next failing bank can be resolved before depositors are locked out for years. The amendment chain tracks the evolution of these powers: the original DICGC Act, 1961 (since withdrawn) → the 2020 Banking Regulation Amendment (board supersession power) → the 2021 DICGC Act Amendment (90-day interim payment mandate).
How the DICGC interim payment process actually works
The 90-day interim payment mandate -- introduced by the 2021 DICGC Act amendment -- changed the depositor's experience fundamentally. Before 2021, DICGC payment happened only after liquidation, which could take years. Now the timeline is compressed and the process has defined stages.
When the RBI imposes a moratorium or issues an All-Inclusive Direction freezing withdrawals, the insured bank must submit a depositor-wise claim list to DICGC. This list aggregates all of a depositor's accounts at the bank (across branches, across account types) to determine the insured amount per depositor -- up to Rs 5 lakh. DICGC then has 90 days from the date of the moratorium to make interim payments. The money flows through the bank itself (or through the liquidator if the bank's licence has been cancelled) -- depositors don't apply to DICGC directly.
The Indian Mercantile Co-operative Bank licence cancellation (PR_62235, February 2026) illustrates the process in action. The press release stated:
"As per the data submitted by the bank, about 98.75% of the depositors are entitled to receive full amount of their deposits from DICGC. As on December 31, 2025, DICGC has already paid Rs 2.90 crore of the total insured deposits under the provisions of Section 18A of the DICGC Act, 1961, based on the willingness received from the concerned depositors of the bank."
Two details matter. First, Section 18A is the specific provision that enables interim payment before final liquidation -- it was inserted by the 2021 amendment precisely to prevent the PMC Bank scenario. Second, payment was based on "willingness received from the concerned depositors" -- meaning DICGC contacts depositors and makes payment only to those who respond confirming their willingness to receive the insured amount (because accepting the DICGC payment means the depositor's claim against the bank is reduced by that amount).
The Jijamata Mahila Sahakari Bank licence cancellation (PR_61380, October 2025) showed a slightly different coverage ratio: "As on September 30, 2024, 94.41% of the total deposits were covered under DICGC insurance." That 94% figure -- lower than the typical 99% -- reflected a bank where more depositors held balances above Rs 5 lakh. The reasons for cancellation were severe: "The bank does not have adequate capital and earning prospects" and the bank "with its present financial position would be unable to pay its present depositors in full." A forensic audit ordered by the Appellate Authority could not be completed "due to the non-cooperation of the bank" -- governance failure compounding financial failure.
What documents does a depositor need? In practice, nothing beyond what the bank already has on file. DICGC works from the bank's records. The claim list is prepared by the bank (or liquidator), verified against the bank's core banking system, and submitted to DICGC. Depositors may need to provide a willingness letter and bank account details for receiving the DICGC payment -- but they don't need to prove their deposit existed. That proof comes from the bank's own books.
The Risk-Based Premium Framework (February 2026)
The DICGC operated on a flat-rate premium system since 1962 — every bank paid the same rate regardless of risk. The Risk-Based Premium Framework (PR_62183) changes this fundamentally:
"Flat rate premium system is simple to understand and administer but does not differentiate banks which manage the risks better. DICGC Act, 1961 [Section 15(1)] provides for differential premium rates for different categories of insured banks."
Why does this matter? Because under the old system, well-run banks subsidised poorly-run banks. A co-operative bank with 30% NPAs paid the same premium rate as SBI. The new framework uses CAMELS parameters, supervisory ratings, and potential loss to the Deposit Insurance Fund to calculate each bank's premium — creating a financial incentive for better risk management. Banks that fail ISE inspections will now pay more for the privilege of deposit insurance.
The March 2026 disclosure amendment (Reserve Bank of India (Local Area Banks – Financia) now requires every bank to disclose in its annual report whether it paid DICGC premiums on time — making premium compliance a public accountability measure.
Last updated: April 2026