Share of insured bank deposits slips below 40% in value terms in FY26

Following the crisis in several cooperative banks in recent times, concerns are rising that the money investors park in banks is not adequately insured.

A businessline analysis of Deposit Insurance and Credit Guarantee Corporation (DICGC) data revealed that in FY26, the value of insured deposits as a share of total assessable deposits, slipped below 40 per cent for the first time since the deposit limit for insurance cover was increased to ₹5 lakhs in February 2020.

The proportion of bank accounts that remained fully protected, however, stayed above 97 per cent.

DICGC has been operating the deposit insurance scheme since 1962. If a covered bank fails, DICGC protects up to ₹5 lakh per depositor per bank, including interest. This limit applies to all of ones savings, current, fixed and recurring deposits in that one bank, taken together.

The value of insured deposits accounted for 39.7 per cent of assessable deposits in FY26, down from 41.5 per cent in FY25. The decline extends a longer-term trend since the high of 50.9 per cent recorded in 2020, following the enhancement of the deposit insurance limit to ₹5 lakh from ₹1 lakh.

Since then, rapid growth in deposit balances, in a limited number of accounts, appears to have outpaced the insured portion of deposits, pulling the ratio lower each year. According to Madan Sabnavis, chief economist at Bank of Baroda, “the higher denominator is due to bulk deposits which are large and hence the ratio is low. If there were more retail deposits, it would be higher.”

When asked if RBI should think about increasing the insured deposit limit once again, he said, “there is a need to evaluate the size of retail deposits. Bulk is kept for short tenures.”

Another banking expert said that the average deposit size for the retail customer is ₹1.43 lakh. Therefore, it could be at least five to six years before RBI considers increasing the insured deposit limit.

The share of fully protected accounts remained overwhelmingly high at 97.38 per cent in FY26, only marginally lower than 97.56 per cent in FY25 and 97.78 per cent in FY24.

Deposit insurance claims admitted but not paid rose to ₹997 crore in FY26, the highest level ever. This marks a sharp turnaround from the post-pandemic low of ₹181 crore in FY23, suggesting that admitted claims are accumulating faster than they are being settled.

According to Vivek Iyer, partner at Grant Thornton Bharat, “the rise in admitted but unpaid deposit insurance claims are primarily driven by administrative delays in distressed cooperative banks, scheduled commercial banks and incomplete depositor data.”

He further explained, “these admitted funds often fail to reach depositors immediately due to various reasons such as delayed submission of list by liquidators, incorrect or incomplete depositor data, failure to submit claim consent forms and active litigation and asset freezes.”