Is Your Bank Deposit Safe?

By C.P. Krishnan

Ordinary and middle-class people deposit their hard-earned money in banks, Non-Banking Financial Companies (NBFCs), and financial (Nidhi) companies. But is their deposit really safe?

As of March 2024, India has a total of 1,997 banks, including:

• 12 Public Sector Banks
• 43 Regional Rural Banks
• 85 private sector banks which include
• 21 Private Sector Banks
• 44 Foreign Private Banks
• 2 Local Area Private Banks
• 12 Small Finance Banks
• 6 Payment Banks &
• 1,857 Cooperative Banks

Total Deposits in Banks

The total deposits in these banks are approximately ₹218 lakh crore, which is 74% of India’s Gross Domestic Product (GDP):

• ₹124 lakh crore in Public Sector Banks
• ₹6 lakh crore in Regional Rural Banks
• ₹76 lakh crore in Private Banks
• ₹12 lakh crore in Cooperative Banks

All these banks are regulated by the Reserve Bank of India (RBI). However, only a portion of public deposits is insured through the Deposit Insurance and Credit Guarantee Corporation (DICGC).

What is Not Covered by RBI?

Deposits in Non-Banking Financial Companies (NBFCs) and financial (Nidhi) companies are not insured or protected by RBI in any way.

Role of DICGC

DICGC was established by RBI in 1961 to provide insurance for bank deposits. During that time, apart from the State Bank of India and its subsidiaries, all other banks were private banks. More than 500 private banks failed between 1947 and 1969, leading to the loss of people’s savings. As a response, DICGC was created.

Initially, in 1961, deposit insurance covered only ₹1,500 per account. This amount has gradually increased, and since 2020, it has been ₹5,00,000 per account in a bank. This includes savings bank accounts, current accounts, recurring deposits and fixed deposits along with accrued interest.

However, this insurance does not apply to deposits made by Central and State Governments, Public Sector and private sector financial institutions, NBFCs, other banks or foreign governments. As of March 2024, these entities hold ₹85 lakh crore (39% of total deposits) in banks which is not insured by DICGC.

Who Pays for DICGC Insurance?

DICGC member banks, which include 140 commercial banks and 1,857 cooperative banks, must pay an annual premium for deposit insurance. Initially, in 1961, this premium was 5 paise per ₹100 of deposits. By 2020, it had increased to 12 paise per ₹100. This amount is borne by the banks and cannot be collected from depositors. As of March 2024, DICGC has accumulated ₹1.99 lakh crore in its deposit insurance fund.

Are Public Sector Banks at Risk?

The government holds over 51% ownership in Public Sector Banks and Regional Rural Banks and therefore these banks will never become bankrupt. So far, no insurance payouts have been made to depositors of these banks and there is no such need in the future also. However, DICGC still collects premium from them, which is contradictory.

Which Banks have gone bankrupt?

So far, DICGC has paid:

• ₹300 crore to depositors of 27 failed private banks
• ₹15,700 crore to depositors of 431 failed cooperative banks

From 2014 to 2023, 60 cooperative banks failed, with 17 failing in 2023 alone. Most bankrupt cooperative banks were in Maharashtra and Gujarat.

In February 2025, the New India Cooperative Bank collapsed, affecting 1,30,000 depositors with total deposits of ₹2,436 crore. This Bank collapsed due to fraud at the top management. Normally only 60% of the deposits of co-operative banks are protected by DICGC. Going by that calculation only to the extent ₹1,460 crore will be compensated to the depositors. Hence the depositors would be put to ₹976 crore loss. The depositors would have kept their money for their future needs.  Now they are put to untold sufferings.

Similarly, when Punjab & Maharashtra Cooperative Bank (PMC Bank) failed in 2019, over 10 depositors committed suicide due to financial losses.

Are Depositors Fully Protected?

DICGC covers deposits of ₹5 lakh or less. Out of 290 crore accounts in banks, 283 crore accounts (97.8%) are fully protected through DICGC as the total deposit in these accounts is only upto Rs.5 lakhs individually.  The deposits in Public Sector and Regional Rural Banks are fully protected as there is no chance of their failure.

Whereas that is not the case with private banks and co-operative banks. Since 1969, 38 private banks have collapsed, with 25 being merged with Public Sector Banks and 13 with other private banks. However, recently, financial frauds at the top in private banks have increased, raising concerns.

• Of ₹76 lakh crore deposits in 85 private banks, only 29% are insured, i.e. only Rs.22 lakh crore deposit is protected leaving ₹54 lakh crore unprotected. It is a huge money. Most of the depositors in these banks are unaware of this fact.

How Does India Compare to Other Countries?

• India: Deposit insurance covers only ₹5 lakh per account per bank
• UK & European countries: Cover up to ₹90 lakh per account
• USA: Covers up to ₹2.15 crore per account

What is to be done?

• Increase deposit insurance coverage significantly beyond ₹5 lakh.
• Stop charging DICGC premium to Public Sector and Regional Rural Banks.
• Mandate government entities to deposit funds only in Public Sector and Regional Rural Banks.
• Strengthen RBI oversight on cooperative banks.
• Make State Governments fully responsible for cooperative bank deposits.
• Extend DICGC insurance coverage to deposits in Non-Banking Financial Companies and financial (Nidhi) companies.

Without these measures people’s savings remain at risk as any failure of the private bank or financial institution would cause deep distress to the depositors.

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