According to reports from Dalal Street Investment Journal (DSIJ), deposit insurance in India is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) with a ₹5 lakh limit per depositor per bank. This coverage includes both principal and accrued interest, but critically, it applies to all eligible deposits held by a person in the same bank, regardless of the number of accounts or FDs. The insurance cover is not provided separately to each FD or savings account, making the total exposure across all accounts subject to the same ₹5 lakh cap. The RBI cancelled the licence of Shirpur Merchants' Co-operative Bank on April 2, 2026, citing insufficient capital and earning prospects, with banking operations ceasing from April 6, 2026. As per the latest reports, approximately 99.7% of depositors are eligible to receive full deposit insurance claim amounts up to ₹5 lakh from DICGC.
As reported by DSIJ, many depositors mistakenly believe that splitting money into multiple fixed deposits within the same bank increases safety through diversification. However, the reality is that all eligible deposits held by a person in the same bank are added together for insurance purposes. For example, if a depositor holds three FDs of ₹2 lakh each in one bank, their total exposure remains ₹6 lakh, with DICGC insurance covering only up to ₹5 lakh. This rule applies even if deposits are spread across different branches of the same bank, as the insurance cap is calculated at the bank level rather than the account level. The Shirpur Merchants' Co-operative Bank case exemplifies this limitation, with 99.7% of depositors entitled to receive full deposit insurance claim amounts up to ₹5 lakh from DICGC. As of January 31, 2026, the DICGC had already disbursed ₹48.95 crore towards insured deposits after receiving consent from depositors.
According to the analysis by DSIJ, the most effective approach to improve safety beyond the ₹5 lakh insured limit is to spread deposits across multiple insured banks rather than diversifying within a single institution. The DICGC's insured-bank framework operates on a bank-specific basis, meaning each bank offers a separate ₹5 lakh cover. This approach provides true diversification and reduces concentration risk, as the ₹5 lakh cover applies separately to each bank rather than being cumulative across all accounts within a single institution. The Shirpur Merchants' Co-operative Bank closure demonstrates the importance of this strategy, as the bank's inability to pay depositors in full highlights the limitations of within-bank diversification. The RBI's decision to cancel the bank's licence reflects its commitment to protecting depositors and maintaining financial stability.
As reported by DSIJ, the fundamental principle is that product diversification does not equal institution diversification. Five FDs of ₹1 lakh each in one bank do not provide ₹25 lakh of protection, as they still offer only up to ₹5 lakh of insurance cover in that bank. The lesson for personal finance management is that depositors should focus on total money parked with one bank rather than the number of individual deposits created there. This distinction is crucial for effective risk management, as recent cases like Shirpur Merchants' Co-operative Bank demonstrate how even well-diversified deposit portfolios within a single institution can be vulnerable to bank-level financial distress. The RBI's decision to cancel the bank's licence and direct immediate winding-up process underscores the regulator's strict adherence to capital adequacy and operational requirements under the Banking Regulation Act, 1949.
