Deposit insurance: 9 things you should know

The concept of deposit insurance is implemented in many countries today. It's aim is to protect bank depositor, partially or fully, from potential losses/risks triggered by a bank's inability to pay its debts when due.

A deposit insurance offers protection to bank deposit holders in case the bank is unable to pay back its depositors.

The facility of deposit insurance is offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). It's a wholly owned subsidiary of the Reserve Bank India.

As per the DICGC website, deposit insurance, was introduced in India in 1962. India was only the second country after the United States of America to launch this scheme in the world.

All bank deposits including savings, fixed, current and recurring deposit for up to the limit of Rs 5 lakh per bank is insured by the DICGC.

If the total sum of a customer's various deposits in a single bank exceeds Rs 5 lakh and the bank goes bankrupt, one will still get only Rs 5 lakh as per DICGC norms. This will be inclusive of principal and interest amount.

DICGC will cover depositors of all commercial as well as foreign banks operating in India. Besides, if the the state, central, urban co-operative banks, local area banks and regional rural banks have bought the insurance cover from DICGC, they will also come under it's purview.

Nearly 92% deposit accounts in the country's banking system are fully protected under DICGC. As many as 44% of deposits with 1,941 co-operative banks have also been covered by DICGC.

The system of deposit insurance is a critical component of financial system that promotes financial stability. Thus, one must know about it as they become part of Indian banking system.