What Happens If a Bank Fails in India? DICGC Cover Explained

If a bank in India fails, your deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakh per depositor per bank, covering principal and interest together, as of October 2026. When the RBI restricts a weak bank under All-Inclusive Directions, the law requires DICGC to pay insured amounts within 90 days. Anything above ₹5 lakh is recovered only from the bank's assets, which can take years and may not be paid in full.

What DICGC is

DICGC is a wholly owned subsidiary of the Reserve Bank of India, set up under the DICGC Act, 1961. It insures bank deposits so that small depositors are protected if a bank is liquidated, merged at a loss or placed under restrictions.

• Who pays the premium: The bank, not you. Insurance is automatic; you do not apply for it.
• Risk-based premium: From 1 April 2026, DICGC moved from a flat premium of 12 paise per ₹100 of deposits to a risk-based premium, so stronger banks pay less. This does not change your cover.
• Limit history: The cover was raised from ₹1 lakh to ₹5 lakh on 4 February 2020. Reports in 2025 and 2026 said the government was considering a higher limit, but as of October 2026 no increase had been notified.

What is covered and what is not

Post office savings schemes are not insured by DICGC, but they are government schemes backed by the Government of India. Primary agricultural credit societies and credit co-operative societies (including multi-state credit co-operative societies) are not banks and have no DICGC cover, even if they call their products "deposits".

You can check whether your bank is insured in the list of insured banks on dicgc.org.in.

How the ₹5 lakh limit is applied

The limit is per depositor, per bank, in the same capacity and same right.

• All your deposits with one bank, across all branches, are added together.
• Deposits with different banks are insured separately.
• Deposits in different capacities at the same bank are insured separately. For example, an individual account, an account as karta of an HUF, an account as a partner of a firm and an account as guardian of a minor are treated as different capacities.
• Joint accounts are insured separately from individual accounts. Joint accounts with the same holders in the same order are added together; a joint account where the order of names is different is treated as a different capacity.
• If you owe the bank money, for example an outstanding loan, the insured amount is generally worked out after adjusting those dues.

Worked example: how much is insured

Ravi has the following at Bank A:

• Ravi individually: ₹1,20,000 + ₹4,50,000 = ₹5,70,000. Insured: ₹5,00,000. Uninsured: ₹70,000.
• Ravi and Meena jointly: ₹3,00,000. Insured in full, as a separate capacity.
• Ravi HUF: ₹2,00,000. Insured in full, as a separate capacity.

Total insured: ₹10,00,000 out of ₹10,70,000. The ₹70,000 excess would depend on recoveries from the bank's assets. If Ravi moved ₹70,000 of his individual FD to Bank B, all ₹10,70,000 would be within the cover.

You can see how much interest a deposit will add over time with our FD calculator, which helps you keep the total, including accrued interest, under ₹5 lakh.

What actually happens when a bank gets into trouble

In India, outright closure of a commercial bank is rare. The RBI usually acts in one of these ways:

1. All-Inclusive Directions (AID). The RBI restricts the bank's business, often capping withdrawals. This has mostly been used for weak co-operative banks.
2. Merger or reconstruction. A weak bank is merged into a stronger one, or rescued under a reconstruction scheme. Depositors usually keep access to their money. Past examples include Lakshmi Vilas Bank's merger with DBS Bank India in 2020 and the reconstruction of Yes Bank in 2020.
3. Amalgamation into a new entity. PMC Bank's deposits were taken over by Unity Small Finance Bank in 2022.
4. Liquidation. The bank's licence is cancelled and a liquidator is appointed. DICGC pays insured deposits, and the rest is paid from asset recoveries.

How the DICGC payout works

Under Section 18A of the DICGC Act, inserted by the 2021 amendment and in force from 1 September 2021, depositors of a bank under AID can be paid without waiting for liquidation:

1. Within 45 days of the AID, the bank submits a list of depositors and their claims to DICGC.
2. DICGC verifies the claims, usually within the next 30 days.
3. DICGC pays insured amounts, so the full process should finish within 90 days of the AID.
4. You may be asked to submit a willingness declaration and KYC through the bank. Watch for notices from the bank and DICGC.
5. Money is paid into a linked bank account you nominate, through the bank or as DICGC directs.

DICGC has an online tracker called Daava Soochak on its website, launched in August 2024, to check claim status using your mobile number and an OTP.

For example, Nasik Jilha Mahila Vikas Sahakari Bank was placed under AID on 9 December 2025, and DICGC scheduled payment for March 2026 for depositors who submitted claims on time.

How to protect deposits above ₹5 lakh

1. Spread money across banks. Keep the total at each bank, including interest that will accrue, at or below ₹5 lakh. An FD ladder across banks is one practical way to do this.
2. Use different capacities legitimately. Joint accounts and HUF accounts are insured separately, but use them only where they genuinely fit your situation.
3. Prefer stronger banks for large balances. The RBI classifies SBI, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs), which must hold extra capital. This does not raise DICGC cover, but large, well-capitalised banks are less likely to reach the point of restrictions.
4. Watch for warning signs. RBI restrictions, repeated delays in publishing results, or unusually high FD rates compared with peers are worth noting.
5. Consider government-backed alternatives. For large amounts you want fully safe, post office schemes, RBI Floating Rate Savings Bonds or government securities carry sovereign backing. Our PPF vs FD vs ELSS guide compares common options.

What not to do

• Do not withdraw everything in panic on rumours; check RBI press releases first.
• Do not assume NBFC or credit society deposits are insured because they look like bank FDs.
• Do not share account details with anyone claiming to be "processing your DICGC claim" over the phone. Claims go through the bank and DICGC only.
• Do not keep cumulative FDs close to ₹5 lakh at one bank; accrued interest can push you over the limit.

Key takeaways

• As of October 2026, DICGC insures up to ₹5 lakh per depositor per bank, including interest.
• Savings, current, fixed and recurring deposits are covered; NBFC, company and credit society deposits are not.
• Different banks and different capacities (joint, HUF, guardian) are insured separately.
• Under AID, the DICGC Act requires payout of insured amounts within 90 days.
• Spread large deposits across banks and track accrued interest to stay within the cover.