Rethinking Deposit Insurance: A Proactive Solution or Crisis Management?

98% of accounts are insured, but the ₹5 lakh cap fails to protect all high-value depositors

- Soumik Bhusan & Pratibha Kumari

Bank deposit insurance is a foundational safety net designed to protect depositors—the primary providers of capital to banks. It plays a crucial role in maintaining public trust and ensuring financial stability, particularly during banking crises.

While the concept of deposit insurance is reassuring in theory, the practical implementation in India often falls short, leaving key gaps in depositor protection. This article examines the evolution of India's deposit insurance framework, its limitations, and whether recent policy measures are genuinely proactive—or simply reactive responses to emerging risks.

India was the second country in the world, after the US, to introduce deposit insurance, doing so in 1962. The Deposit Insurance and Credit Guarantee Corp. (DICGC), a subsidiary of the Reserve Bank of India (RBI), oversees this system. Today, the insurance covers up to ₹5 lakh per depositor per bank. According to the RBI's Handbook of Statistics on the Indian Economy, 98% of deposit accounts—by number—were covered under this scheme in 2023-24. However, in value terms, only 43% of total deposits were insured.