How deposit insurance works
18 Mar, 2014 12:12 PM
The recent scare at United Bank of India may have left you wondering how safe the money you deposited in your bank is. Let’s try to clear the fog around some of the more common apprehensions people have:

What if my bank fails? Are my deposits safe?

Yes. Your deposits are quite safe. If your bank fails, your deposits are insured by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC), a wholly owned subsidiary of the Reserve Bank of India. This insurer, created by an Act of Parliament, has been safeguarding interests of depositors since 1961.

Is the insurance cover available only for deposits in public sector banks?

No. It applies to all commercial banks. This includes public sector and private banks, branches of foreign banks operating in India, local area banks and regional rural banks. What’s more, even all state, central and primary cooperative banks, which are known as urban cooperative banks, are covered bythe DICGC.

Oh, so deposits everywhere are covered?

No, there are exceptions. Cooperative banks from Meghalaya and the Union Territories of Chandigarh, Lakshadweep and Dadra and Nagar Haveli are not covered by the DICGC, nor are primary cooperative societies.

But that’s all very hard to remember. How will I know for sure if my bank is insured?

The DICGC, while registering banks, furnishes them with printed leaflets that provide information about deposit insurance. You can ask your branch official for this information. In case of any doubts, you can also visit the DICGC website, which lists the banks that it insures.

What are the circumstances under which we can expect the DICGC to compensate depositors?

When your bank fails and goes into liquidation, or when it is merged with another bank, the DICGC pays the amount due to you through the officially appointed liquidator. This process is time-bound too. The DICGC has to settle all claims within two months from the receipt of the claim from the liquidator. As per the latest DICGC annual report, dues are settled within 27 days on average.

So, my entire deposit is insured. Now that’s a relief.

No, you are only insured up to a maximum of ?1-lakh, including principal and interest.

What if I have different accounts in different branches of the same bank?

The deposits in different branches are totalled and the maximum cover of ?1-lakh is applied.

But what about joint accounts and other accounts that I hold?

All deposit accounts that you hold in your name in the same bank are clubbed together to apply the maximum cover.

So if you hold savings, fixed, current, and recurring deposit accounts in different branches under your name, you will only get ?1-lakh if the bank goes belly up. But if you maintain deposits with different banks or in different capacities, the ?1-lakh limit is applied separately for each of them. For instance, let us assume that you opened a savings account in Bank ‘A’ under your name. You then open another account as a partner in your firm and a joint account with your wife in the same bank.

As these accounts are held in different capacities, each of these deposits will be insured up to ?1-lakh. Now assume that you open another savings account in your name in Bank ‘B’. Here again, your deposit in the second bank will have a separate cover of ?1-lakh. Be sure to apportion your deposits across different banks so you are fully covered.

Is the insurance cover available only for the principal, or also the interest earned on deposits?

The ?1-lakh limit is for both principal and interest put together. So be sure to deposit a tad less than ?1-lakh in your account. This way both your principal and interest can be covered. For example, if you are earning 9 per cent interest on your deposit, you should put about ?92,000 in your account.

All this is comforting. But how much do I need to pay as premium for the cover?

You do not have to pay any premium. The DICGC collects the premium from your bank.

Since the bank pays the premium, can it also choose to withdraw from this scheme?

No. the deposit insurance is mandatory and no bank can withdraw from it.

Can the DICGC withdraw the cover at any time?

If your bank fails to pay the premium for three consecutive periods, the DICGC can withdraw its cover. But you will be notified through newspapers. There may be other instances where the DICGC may cancel the registration of an insured bank.
Source : Business Line

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