Understanding DICGC Insurance: Safeguarding Your FD Investments

December 03, 2024

what-is-dicgc-insurance-in-fds

Fixed Deposits (FDs) have long been a popular investment choice for Indian investors. They offer guaranteed returns and are considered relatively safe. There's a reason why FDs are regarded as comparatively safer than other investment instruments like mutual funds and stocks. Of course, one of the reason being FDs are not market-linked products. You continue to earn fixed interest even if the market is volatile. However, there's another reason - protection of deposit amount via DICGC insurance.

 

This article delves into the safety mechanisms protecting your FDs, with a focus on Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance.

 

The Safety of Fixed Deposits: An Overview

1. Factors Contributing to FD Safety
  • Regulatory oversight by the Reserve Bank of India (RBI)
  • The bank's financial health and management
  • DICGC insurance coverage

 

While FDs are generally considered safe, it's crucial to understand the protections in place and their limitations.

 

What is DICGC?

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of the Reserve Bank of India. It provides insurance coverage for bank deposits up to ₹5 lakh per depositor, per bank.
 

DICGC Insurance Coverage

Key Points

  • Coverage limit: ₹5 lakhs per depositor, per bank.
  • Covers all commercial banks, including foreign banks operating in India, local area banks, and regional rural banks.
  • Includes savings, fixed, current, and recurring deposits.

 

This insurance is automatic and doesn't require any separate registration.
 

Scope of DICGC Insurance

What's Covered?

  • The principal and interest amount of your deposits.
  • Deposits in different branches of the same bank are aggregated.
     

What's Not Covered?

  • Deposits from foreign governments.
  • Deposits of central/state governments.
  • Inter-bank deposits.
  • Deposits of the State Land Development Banks with the State co-operative banks.
  • Any amount due on account of any deposit received outside India.
  • Any amount specifically exempted by the DICGC with the previous approval of the RBI.
     

FD Safety: Beyond DICGC Insurance

While DICGC insurance provides a safety net, the overall safety of fixed deposits depends on several factors:


1. Bank's Financial Health
  • Check the bank's Non-Performing Assets (NPA) ratio.
  • Review the bank's credit ratings.
  • Assess the bank's capital adequacy ratio.
     
2. Diversification
  • Spread your deposits across multiple banks to maximize DICGC coverage
  • Consider a mix of public and private sector banks.

3. DICGC Claim Process

In the unlikely event of a bank's meltdown, here's how the DICGC claim process works:

  • The RBI or the Registrar of Cooperative Societies places the bank under moratorium.
  • DICGC is notified.
  • The bank submits a claim list to DICGC.
  • DICGC pays the claim amount to the bank.
  • The bank disburses the amount to depositors.
     

The DICGC aims to settle claims within 90 days of the bank being placed under moratorium.
 

Recent Changes Enhancing FD Safety
 

1. Interim Access to Deposits

As of February 2021, the DICGC (Amendment) Act, 2021 allows depositors to access up to ₹5 lakhs of their deposits within 90 days of a bank being placed under moratorium.


2. Increased Coverage

The insurance cover was increased from ₹1 lakh to ₹5 lakhs in 2020, significantly enhancing the safety net for depositors.
 

Comparative Analysis: FD Safety vs Other Investments

To put the safety of fixed deposits in perspective, let's compare them with other popular investment options:

Investment OptionSafety Level

Guaranteed Returns

Liquidity
Fixed Deposits HighYes Moderate
Savings Account HighNoHigh
Government BondsVery High
 
YesLow
Mutual FundsModerateNoHigh
StocksLowNoHigh

 

Fixed deposits offer a balanced mix of safety, guaranteed returns, and moderate liquidity

 

Tips for Enhancing Your FD Safety

  1. Spread deposits across multiple banks.
  2. Stay within the ₹5 lakh DICGC coverage limit per bank.
  3. Regularly monitor your bank's financial health.
  4. Consider government-backed deposit schemes for additional safety.
  5. Stay informed about regulatory changes affecting deposit insurance.
     

The Future of Security of FD in India

The Indian banking sector is continuously evolving, with regulators implementing stricter norms to ensure the safety of depositors' funds. Some potential future developments include:
 

  1. Further increase in DICGC coverage limits.
  2. Faster claim settlement processes.
  3. Enhanced transparency in bank operations.
  4. Stricter regulations for bank management and operations.

Final Thoughts

Fixed Deposits remain a safe investment option for risk-averse investors, thanks to regulatory oversight and DICGC insurance. However, it's crucial to stay informed and take proactive steps to maximize the safety of your investments. 

 

Looking to grow your savings faster? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.  

 

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FAQs

1.  Is DICGC insurance applicable to all types of banks?

DICGC covers all commercial banks, including foreign banks operating in India, local area banks, and regional rural banks.

2.  How often is the DICGC insurance premium paid?

Banks pay the insurance premium to DICGC on a half-yearly basis.

3.  Are NRI deposits covered under DICGC insurance?

 Yes, NRI deposits are covered under DICGC insurance, subject to the ₹5 lakh limit.

4.  Does DICGC coverage apply separately to each branch of a bank?

 The ₹5 lakh coverage is aggregated for all deposits held by a depositor across all branches of a bank.

5.  Are corporate fixed deposits covered under DICGC insurance?

 No, corporate fixed deposits are not covered under DICGC insurance.

6.  How can I check if my bank is covered by DICGC insurance?

 All banks licensed by RBI are mandatorily covered under the DICGC insurance scheme.

7.  Is the interest accrued on my FD also covered under DICGC insurance?

Yes, both the principal and interest amount (up to the date of bank closure) are covered, subject to the ₹5 lakh limit.

8.  How long does it take to receive a DICGC insurance payout in case of bank failure?

As per recent amendments, DICGC aims to settle claims within 90 days of a bank being placed under a moratorium.

9.  Can I increase my DICGC coverage by opening multiple accounts in the same bank?

 No, the ₹5 lakh limit applies to all deposits held by a depositor in a bank, regardless of the number of accounts.

10.  Are deposits in cooperative banks also covered under DICGC insurance?

Yes, deposits in cooperative banks registered with the RBI are covered under DICGC insurance.

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