If a bank goes bankrupt or closes, what happens to customers’ fixed deposits and savings? Are these also lost? The Reserve Bank of India has changed the rules in this regard. If a bank goes bankrupt, the Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance of up to ₹5 lakh on the deposits.
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Generally, everyone keeps their money and savings in their bank accounts. Additionally, people invest their savings in bank FDs and RDs. The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance of up to ₹5 lakh on these deposits. The Reserve Bank of India (RBI) has now made some changes to the rules regarding this deposit insurance. Let’s explore the new changes made by the RBI.
The question arises: how much money should one deposit in a bank to ensure security? According to Reserve Bank of India (RBI) guidelines, there is no upper limit on FDs, but the Deposit Insurance and Credit Guarantee Corporation (DICGC) only provides insurance up to ₹5 lakh. This makes it clear that if a bank collapses, you could suffer a loss of more than ₹5 lakh.
Learn where the money comes from when a bank collapses.
In India, DICGC insurance protects depositors. If a bank collapses, the DICGC guarantees depositors a maximum of ₹5 lakh (principal amount + interest). This amount comes from the DICGC’s funds. This fund is created from insurance premiums paid by banks. Previously, it was 12 paise for every ₹100. For example, if a bank had deposits of ₹10,000 crore, it would have to pay a premium of ₹12 crore to the DICGC. Now, this amount will be based on the bank’s rating.
Learn about RBI’s new deposit insurance rules
Until now, all banks paid the same premium for this insurance, but with the RBI’s new deposit insurance rules, banks will now pay different premiums based on risk. The premium will be lower for low-risk banks, while higher-risk and weaker banks will receive higher premiums. The premium will now be determined based on the bank’s capital, bad loans, and management. This new change will be implemented in the coming years.
Understand it this way:
This means that a bank with a lower risk of investing money, because it complies with all regulations, will be charged a lower insurance premium. Whereas, banks with higher risk will be charged a higher premium. For example, banks that take on more risk (such as high NPAs and poor balance sheets) will have to pay a higher premium. This system will provide relief to strong banks and pressure weak banks to improve. Its purpose is to promote safe banking practices.
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