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Introduction to Banking

Deposit Insurance System

Having read all the above information, a very logical and common question that came to Satish’s mind is what will happen to his money if the bank becomes bankrupt. Upon exploring the internet, he learned about the 'Deposit Insurance System' and was relieved to learn more about it. 


A Deposit Insurance System is a system established by the Government to protect customers against the loss of the money deposited with a financial institution in case the latter becomes insolvent. This is done through RBI’s subsidiary Deposit Insurance and Credit Guarantee Corporation (DICGC) of India which ensures deposits of all banks including fixed deposits, current and savings accounts up to a limit of ₹500,000 for each depositor. The insurance cost is borne by the respective banks. 


In case a bank covered by the Deposit Insurance Scheme of DICGC fails or is merged with another bank or undergoes liquidation, the DICGC pays the amount due to depositors. At present, the DICGC covers all commercial and cooperative banks of India, except a few. 


However, the maximum insured amount per depositor is ₹ 5 Lakhs including principal and interest. Therefore, if a person has deposited ₹492,000 and the interest amount due to him is ₹10,000, the depositor will get only ₹500,000 back and will not get the additional ₹2000 due to him. In case a person has different accounts in different branches of the same bank, then all the accounts are consolidated and a total of  ₹500,000 is paid to the person.

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