The bank is insured for depositors loss of principal as well as the interest earned upto a maximum amount of ₹ five lakhs.

For example,

If you had an account with a deposit amount of 4,95,000 plus earned interest of 4,000, the total amount insured by the DICGC would be 4,99,000.

If, however, the deposit amount in that account was 5 lakhs then the interest earn would not be insured, not because it was interest but because that was the total amount is over the 5 lakh insurance limit.

This information is as provided by the RBI