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If you have made a fixed deposit (FD) of ₹ 10 lakh in a single bank and that bank goes bankrupt or defaults, then you will not get the entire ₹ 10 lakh back. As per the rules of ‘Deposit Insurance and Credit Guarantee Corporation’ (DICGC), a wholly owned subsidiary of Reserve Bank of India (RBI), in case of collapse of any bank or cancellation of its license, a depositor can get a maximum of Rs. ₹5 lakh Insurance cover is available only up to Rs.
This limit of ₹ 5 lakh includes both the principal amount and the interest received on it. This simply means that if your FD of ₹10 lakh also has an interest of ₹1 lakh attached to it and the bank goes bankrupt, then out of the total liability of the bank of ₹11 lakh, you will get only ₹5 lakh legally protected. Recovery of the remaining ₹6 lakh will depend on the liquidation of the bank’s assets and the legal process, which may take a long time or even result in losses.
Many depositors have a misconception that if they deposit money in different branches of the same bank, they will get different insurance covers. DICGC rules are very clear on this matter:
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All branches of the same bank are considered one: If you have kept an FD of ₹ 5 lakh in one branch of State Bank of India (SBI) or Punjab National Bank (PNB) and FD of ₹ 5 lakh in another branch, then considering both of them as one entity, you will get a maximum cover of ₹ 5 lakh on a total of ₹ 10 lakh.
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Combination of Savings Account and FD: If you have a savings account of ₹ 2 lakh and an FD of ₹ 8 lakh in the same bank, then the total deposit will be considered to be ₹ 10 lakh and the maximum limit of insurance claim will be ₹ 5 lakh only.
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Deadline (payment in 90 days): Under the amendment in the Banking Act, if a moratorium is imposed on a bank, there is a mandatory provision to pay the insurance amount up to ₹ 5 lakh to the depositors within 90 days.
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Which banks are included: All commercial banks (public and private sector), foreign banks, small finance banks and regional rural banks (RRBs) are covered under this insurance.
If you have a capital of ₹10 lakh and don’t want even a single rupee of yours to be at risk, use these two strategies instead of keeping the entire amount in one bank in one name:
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Division into two separate banks (Two-Bank Rule):
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Deposit an amount of ₹5 lakh each in two different banks (e.g. a government bank and a strong private bank).
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Since both the banks are separate legal entities, you will get independent 100% government insurance protection of ₹5 lakh each (total ₹10 lakh) in both the banks.
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Joint Account and Different Ownership Capacities:
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As per DICGC rules, if the account is opened in different capacities (Right and Capacity), then it is considered separate.
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For example, in the same bank, if the first account is in the name of ‘A (single)’, and the second account is in the name of ‘A and B (joint)’, then both the accounts get a separate insurance cover of ₹5 lakh each.
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India’s banking regulatory framework is one of the most stringent and secure in the world. The Reserve Bank of India has given the status of ‘Domestic Systemically Important Banks’ (D-SIBs) to the country’s three largest banks—State Bank of India (SBI), HDFC Bank and ICICI Bank. These are colloquially called “Too Big To Fail”.
RBI imposes high capital requirements and strict monitoring on these banks so that no systemic crisis arises. Even if there is a financial crisis in any bank (as was seen in the case of Yes Bank in the past), then the central bank and the government along with other strong banks reconstruct it, so that the money of ordinary retail depositors is safe. However, the risk in co-operative banks is seen to be comparatively higher, hence large amounts should always be invested in scheduled commercial banks only.