Money Basics · Banks, FDs & savings

What happens if a bank fails (DICGC, ₹5L insurance)

Banks seem permanent. They're not. A large private bank, an urban co-operative bank and an old private bank were all rescued, restructured or placed under moratorium in India within the last few years. Here's what actually protects you.

DICGC, your deposit insurance

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is an RBI subsidiary. It insures deposits at every bank in India. Every commercial bank (including small finance banks, payments banks, regional rural banks and Indian branches of foreign banks) and every co-operative bank. Only credit co-operative societies, which are not banks at all, sit outside it.

Coverage: up to ₹5 lakh per depositor per bank. Principal + interest combined.

₹5 lakhmaximum protected per depositor per bank (since 2020, raised from ₹1L)

What 'per depositor per bank' means

• You have ₹3L in savings + a ₹2L FD at the SAME bank = ₹5L total. Fully covered.
• You have ₹4L at one bank + ₹4L at another = ₹4L covered at each = ₹8L total covered. Both protected.
• You have ₹8L sitting at one bank = ₹5L covered, ₹3L at risk.

> The ₹5L limit applies to the SUM across all your accounts at ONE bank, savings, FD, RD, current, all combined.

What happens during a bank failure

1. RBI places the bank under all-inclusive directions (a moratorium). Withdrawals are capped, sometimes to a few thousand rupees a week

2. The DICGC clock starts that same day: the bank has 45 days to file the depositor list, DICGC 30 days to verify and 15 days to pay. 90 days end to end

3. In parallel, RBI looks for a merger or a reconstruction scheme. If one lands you are made whole through it; if not, the insurance pays. The clock does not wait on that search.

Practical protection strategy

• Keep no more than ₹5L per bank in deposits if you're concerned
• Spread across 2–3 banks for large deposits
• Public-sector banks carry sovereign backing. Historically the government has stepped in before DICGC had to pay
• Small finance banks offer higher interest but carry more risk, worth knowing

What isn't covered

Mutual funds bought through your bank are not bank deposits. DICGC does not cover them, and nothing else does either. Their value can fall, and that fall is yours.

What the SEBI-regulated AMC structure does give you is separation, not protection. Your units sit with a custodian in your name, outside the bank's books. If the bank that sold them goes under, your units still exist. The market risk on them was always yours.

Insurance only pays out if someone can actually claim the money. Which brings up the one field in your banking app you have almost certainly left blank.

Takeaway. DICGC insures ₹5 lakh per depositor per bank. Keep large deposits spread across banks and never exceed ₹5L at any single institution.