Spread your deposits across banks or open multiple accounts under different capacities in the same bank with up to Rs 5 lakh in each account to get maximum DICGC protection.
We are all aware that bank deposits up to Rs 5 lakh per depositor are protected under the Deposit Insurance Credit Guarantee Corporation (DICGC) Act 1961. For a better understanding, let us scratch the surface and look at the picture.
As on end of March 2021, total bank deposits were around Rs 150 lakh crore. Out of this, around Rs 76 lakh crore was insured under DICGC, which is little more than 50%. While it may seem on the lower side that only half of the deposits are insured, if we look at the number of bank accounts, a little more than 98% is fully protected.
The reason is, most of the deposit accounts, pan-India, are of an amount less than Rs 5 lakh. The number of deposit accounts that have more than Rs 5 lakh are only 2% by number, but by amount of deposits, these comprise half of total deposits. The bigger deposit accounts comprise corporates, HNIs, partnership firms, trusts, etc. As long as your deposit, combining savings and term deposits and recurring deposits, are within Rs 5 lakh with a particular bank, you are protected.
The deposit insurance fund, maintained by DICGC, stood at around Rs 1.3 lakh crore as on end of March 2021, implying a reserve ratio (deposit insurance fund to insured deposits) of 1.7%. This is a percentage of insurable deposits of Rs 76 lakh crore and not the total deposit of Rs 150 lakh crore.
The government had announced in the latest Union Budget, a move towards streamlining the provisions of the DICGC, so that if a bank is temporarily unable to fulfil its obligations, the depositors can get easy and time-bound access to their deposits to the extent of the deposit insurance cover.
How to optimise?
There are two ways to optimise your coverage under DICGC. One is, spread your deposits across banks, since the coverage is per bank and not across the banking system. Hence, as an example, Rs 50 lakh spread across 10 banks, as Rs 5 lakh with each bank, is protected. However, different branches of the same bank are considered together for this purpose, hence spreading across branches will not help. Also, Rs 5 lakh for this purpose includes all your money with the bank—savings, term deposit, recurring deposit, interest on your deposits, etc.
The other way to optimise under DICGC is to open multiple accounts under different capacities. As an example, you may open accounts as self, jointly with a family member, as a partner in a firm, as guardian of a minor child, etc. One person can have only one PAN number, but the accounts are separate and even in the same bank, these will be treated as separate accounts. If you have a comfort level with the services of only a few banks, you may open more than one account in different capacities with those few banks.
As we have discussed earlier, the basis of your safety or comfort with a bank should not be the DICGC cover but the overall fundamental quality of the bank. Preferably you should bank with institutions where you would not require this coverage. If you are placing your money with a bank due to reasons like high interest rate offered or proximity (though with internet availability this is not relevant) or some other reason, and if there is an iota of doubt about the safety of your money, you may consider what has been mentioned earlier and optimise.