We all go to banks for safe keeping money. The banking system in India is generally robust. As long as you are keeping money with a leading bank, your money is safe. However, on paper, your money is safe up to ₹5 lakh per bank, which is known as deposit insurance. This is administered by Deposit Insurance and Credit Guarantee Corporation (DICGC). Today we will look at the scenario on deposit insurance in India.

Overall scenario

In 1962, deposit insurance limit was ₹1,500. It went up in stages and in 1993, it was increased to ₹ 1 lakh. In February 2020, it was raised to ₹5 lakh and it stands there. The insurance premium, which the bank pays, was 5 paisa per ₹100 in 1962. It has risen to 12 paisa now. The amount of claims settled by DICGC, from inception till 2020-21 was ₹5,763 crore.

In 2021-22, DICGC paid out ₹8,517 crore as compensation to depositors of Punjab and Maharashtra Cooperative Bank (PMC) was relatively higher. As of March 2024, the number of banks covered by DICGC was 1,997, including 140 commercial banks and 1,857 co-operative banks.

As much as 97.8% of the deposit accounts (289.8 crore) are fully insured. Of the total assessable deposits of ₹218 lakh crore, 43.1% was insured. The extent of coverage, as a percentage of total deposits of ₹218 lakh crore, is 43.1%, due to the ₹5 lakh limit.

Insured deposits ratio

The insured deposits ratio i.e., the ratio of insured deposits to assessable deposits is higher for cooperative banks (63.2%) than commercial banks (42%), as the deposit size in cooperative banks is relatively smaller. Within commercial banks, public sector banks have a higher coverage ratio (48.9%) than private sector banks (32.7%) due to the same reason.

Enhancing coverage?

The ₹5 lakh includes all your money with the bank e.g. savings, term deposit, recurring deposits etc. Under DICGC, there are ways to enhance your coverage. You may spread deposits across banks, since the coverage is per bank and not across the banking system. For example, ₹25 lakh spread across five banks as ₹5 lakh with each bank is insured. Different branches of the same bank are considered together, therefore spreading money across branches will not help. You may also open multiple accounts in different capacities. For example, you may open accounts as self, jointly with your spouse, as a partner in a firm, as guardian of a minor child, etc. Though one person can have only one PAN number, the accounts are separate and even in the same bank, these will be treated as separate accounts.

In a joint account, there is combination of multiple persons. If you have comfort level with the services of certain banks, you may open more than one account in different capacities with those banks.

Need for protection

Once in a while, we hear about unfortunate incidents at bank depositors’ money being at stake. The finger pointing is aimed at the regulator, Government, etc. While the ‘system’ has a responsibility, every stakeholder has a responsibility, including the depositor. ‘Responsibility’ of the depositor means understanding what s/he is getting into, what is the risk, and if something goes wrong, who is supposed to bear the loss beyond ₹5 lakh.

This is important, because we tend to get swayed when we see the board of a ‘bank’ written in big fonts, hanging outside the office. As an anecdote, reportedly, the event at PMC did not spare even people at the RBI. Reportedly, the Reserve Bank Officers’ Co-operative Credit Society Ltd., with about 3,500 members, had an FD of ₹105 crore with the PMC.

Guidance to readers

The basis of safety or comfort with a bank should not be the DICGC cover but the fundamental quality of the bank. Preferably you should bank with institutions where you would not require this coverage. If you are placing your money with a bank due to reasons like high interest rate or proximity, you should think again. When you are opting for the simplest and most basic of investment options, you should have peace of mind. Public sector banks are safe. Though not a stated guarantee, it is an implied responsibility of the Government, which is beyond the ₹5 lakh discussed earlier. When it comes to cooperative banks, you have to be careful about DICGC cover and check with their website if your bank is covered.

(The writer is a corporate trainer (financial markets) and author)

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