Did you know that just 1.8% of Indian bank deposits under ₹5 lakh are covered under the Deposit Insurance Scheme?

Deposit Insurance and Credit Guarantee Corporation (DICGC), a division of Reserve Bank of India (RBI), responsible for insuring the term deposits (under ₹5 lakh) holds ₹1,46,842 crore under the Deposit Insurance Fund as per the corporation’s 2021-22 annual report.

At the end of March 2022, as per the RBI, the country had term deposits of ₹165 lakh crore in the banking system out of which ₹81 lakh crore were lying in the accounts with less than ₹5 lakh deposit. As per the current law only deposit amount less than ₹5 lakh merits deposit insurance. Thus, ₹1.46 lakh crore under DICGC’s kitty is just 1.8% of the ₹81 lakh crore term deposit that deserves deposit insurance. Moreover, out of 262 crore bank accounts in India, 98% of accounts merit deposit Insurance as they hold less than ₹5 lakh.

Does DICGC hold adequate funds to soothe the frayed nerves of Indian depositors in the event of a bank failure? Speaking with Fortune India, a treasury head of a listed private bank says all Insurance calculation (be it of life or deposits) is based on probabilities and all deposits in all banks cannot vanish at once. “DICGC funds are much more than other nations that are currently facing banking problems,” he believed.

In the past three weeks, three regional banks namely Silvergate Bank, Silicon Valley Bank, and Newyork-based Signature Bank in the US went bust while Credit Suisse, Switzerland’s second-largest bank got acquired by rival UBS as mounting losses depleted its reserves.

These recent developments demand analysis of the current preparedness of the Indian banking system under deposit insurance scheme that primarily deals with a run on the bank and case of bank failure.

Currently, there are 2,040 banks that come under the umbrella of DICGC. All commercial banks including the branches of foreign banks functioning in India, local area banks, regional rural banks, small finance banks and payment banks are covered under the Deposit Insurance Scheme. All eligible co-operative banks as defined in Section 2(gg) of the DICGC Act are covered under the Deposit Insurance Scheme, states the 2021-22 annual report.

The authorised capital of DICGC is ₹50 crore which is entirely subscribed by the Reserve Bank of India. The Corporation collects an insurance premium of 12 paise per ₹100 deposit from insured banks for administration of the deposit insurance system.

The DICGC came into existence in 1961-62. In its initial year of operation, 276 banks were covered under the deposit insurance scheme. DICGC sphere of influence reached its peak in 2004-05 when 2,547 banks were insured by the Corporation. Since its inception DICGC has paid claims worth Rs 14,278 crore.

Deposit Insurance Fund by RBI

RBI's Deposit Insurance Fund covers 1.8% of bank deposits under ₹5 lakh