Home >Money >Personal Finance >Does deposit insurance pay you directly for bank failure?

MUMBAI: Today, all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Moreover, if you have deposits with more than one bank, the deposit insurance coverage limit is applied separately to the deposits in each bank.

However, in the case of liquidation, does deposit insurance directly deal with the depositors of failed banks? In this piece, we take a look at when is deposit insurance liable to pay the claim amount and to whom.

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Normally, the deposit insurance while registering the banks as insured banks provide them with printed leaflets for display giving information relating to the protection afforded by the Corporation to the depositors of the insured banks. In case of doubt, you can make a specific enquiry of the branch official whether your bank is insured by the DICGC.

You must also know that the deposit insurance scheme is compulsory and no bank can withdraw from it. However, the DICGC may cancel the registration of an insured bank if it fails to pay the premium for three consecutive periods.

As per the deposit insurance scheme, each depositor in a bank is insured up to a maximum of 5 lakh for both principal and interest amount held by him/her in the same right and same capacity as on the date of liquidation or the cancellation of bank's licence or the date on which the banks get amalgamated or merged with another bank.

So, if a bank goes into liquidation, the deposit insurance is liable to pay to the liquidator or appointed officer the claim amount of each depositor up to 5 lakh within two months from the date of receipt of the claim list from the appointed officer.

The appointed officer prepares a depositor wise claim list and sends it to the DICGC for scrutiny and payment. Once, the list gets scrutinized, the officer disburses the claim amount to each insured depositor corresponding to their claim amount. The official liquidators are generally appointed by the Central Government.

However, if a bank is reconstructed, amalgamated or merged with another bank then the deposit insurance pays the bank concerned, the difference between the full amount of deposit or the limit of insurance cover in force at the time, whichever is less and the amount received by the concerned bank under the reconstruction, amalgamation or merger scheme within two months from the date of receipt of claim list from the transferee bank or, Chief Executive Officer of the insured bank.

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