Deposit Insurance system made to protect bank depositors. It is for paying in full or part debt when due if banks have a disability to pay. It promotes financial stability.
According to the IADI, as of 31 Jan 2014, 113 countries have instituted some form of explicit deposit insurance up from 12 in 1974.
Why it exists
Banking system is prone to a bank run due to a broad spectrum of harmful events, including economic recession. Deposit Insurance avoids insolvency of banks by the withdrawal of depositors.
How it works
- Deposit Insurance is a protection cover to depositors if bank fails and does not have money to pay to its depositor.
- DICGC is a wholly-owned subsidiary of RBI which insures all banks deposits for the limit of 5 Lakh per bank.
- If bank goes bankrupt, depositor will receive only 5 Lakh inclusive of principal and interest amount.