After the recent PMC bank scene, the queries have again been started pouring as to how secure are the bank deposits. The same was the quantum of queries when there was the news of government coming up FRDI bill. Even though FRDI bill has been junked now, but worrying about the most common and popular form of deposit which is considered to be the only safe instrument in India is quite understandable, at least after seeing RBI restricting the withdrawals of your own money from the bank (as in PMC bank).
Most people know that only Rs 1 lakh 5 Lakhs (as per budget 2020) of the bank deposit is guaranteed, in case of it being liquidated, this is true, but what else? What is this guarantee about? Saving bank deposit, Fixed deposit? Or each account separately? What about Current account, Money lying in joint deposit? What if you have 2 or more different accounts in different branches? Is the guarantee available to all the banks? How to find if your bank is covered under the guarantee or not?
These are some of the questions which were asked to me by many of the blog readers as well as clients in the last 2 months. So, I decided to write a detailed post on the same so all my readers may get benefitted.
Bank deposit insurance in India – What is it all about?
In India, this Guarantee is provided by “Deposit insurance and Credit Guarantee Corporation” (DICGC), under the framework and regulations provided by RBI.
All Commercial banks, foreign banks, local area banks, Regional Rural banks, small finance banks, and even all cooperative banks are covered under this scheme.
As soon as the bank gets the license, they are required to be registered with DICGC. In the case of DICGC cancels the registration of any bank, then that would be a big development and all depositors and the general public will be notified through newspapers.
Deposit Insurance – How much of the deposit is insured?
Under the provisions of Section 16(1) of the DICGC Act, the insurance cover as of now is limited to (w.e.f. 1st May 1993) Rs 1 lakh 5 lakhs (as per budget 2020)only per depositor(s) for deposits held by him (them) in the “same right and in the same capacity” in all the branches of the bank taken together.
However, the Act also empowers the Corporation to raise this limit with the prior approval of the Central Government.
Do note that Rs 1 lakh 5 Lakhs (as per budget 2020) is the total amount insured and it does not differentiate between principal and interest. Even if, with the accrued interest, the total bank deposit is coming out to be Rs 1 lakh 5 Lakhs (as per budget 2020) or less than that, then the full amount is insured. However, if the total amount is coming out more than 1 lakh then only 1 lakh would be insured ( 5 Lakhs (as per budget 2020) ).
And the limit is per bank not per branch. This means that if you have deposits in different branches of the same bank, all the deposits will be clubbed to reach out to the insured limit.
But if you have different deposits in different banks, then all the deposits in different banks are insured up to Rs 1 lakh 5 Lakhs (as per budget 2020) per bank.
(Also Read: You should not ignore the bank’s instruction to resubmit KYC documents)
What kind of deposit accounts are covered under Bank Deposit Insurance?
All types of deposits, be it fixed, saving, recurring, etc. are covered under this scheme. Except
- Deposits by Governments – State/Central/Foreign
- Interbank deposits
- Deposits of State land Development banks with State Cooperative Banks
- Any amount due on account of and deposit Received outside India
- Any amount specifically exempted by DICGC with prior approval of RBI
It is important to note that , if the deposits are held in a different capacity then all deposits are insured up to the upper limit.
This means that if you have 2 different accounts (FD, Savings, Current account under proprietorship) in the same name in one bank (and its branches) then you are under the same right and in the same capacity, and thus all will be clubbed for the provision of this rule.
But, if you have different accounts in different capacities, like one single, one joint, one current (as a partnership/private Limited/Karta Huf), U/g guardian account, then all will be considered separately for this DICGC provision. Below illustration taken from DICGC site may help this to understand better
Conclusion:
I am sure you also found Rs 1 lakh 5 Lakhs (as per budget 2020) deposit insurance too little security to your hard-earned money in today’s scenario. Many Organisations are mulling RBI and the government to increase this cover, considering it being the lowest globally.
But this is also true that banks are a big pillar of any economy and the Indian government along with RBI to date has been very effective in controlling and managing any bank fiasco and did not let any bank fail. Either the Weak banks got merged with bigger stronger banks (e.g. GTB with OBC, New bank of India with PNB) or some PSU be asked to bail it out (LIC to IDBI bank).
So, for now, you may consider or is should say assume your bank deposits to be safe as no government can afford a bank’s failure, but yes if you by Guarantee then that is only of Rs 1 lakh 5 Lakhs (as per budget 2020). So, it is wise to be prepared and have a diversified approach in case of deposits and investments.
Manikaran Singal is the founder and Chief financial planner at Good Moneying Financial Solutions. He is a CERTIFIED FINANCIAL PLANNER CM and SEBI registered Investment adviser (Regd no. INA 100001620). He’s having 20+ years of experience in financial services space.
I think very nicely explained with all the details. Very clearly spelt out all the nuances with example. So now the things are clear as to what constitutes DICGC and how secure we are as far as our deposits with banks are concerned..
Thanks Kamal ji
So in a nutshell, bank deposits are safe to the extent of INR one lakh per bank in any case. To say that no government would allow banks to fail – try explaining that to PMC account holders. My contract background trained me to believe in – “What has not been documented has never been said”….so the converse is also true, whatever is documented is said loud n clear!
Hmmm…yes, at the end banks are also corporate houses. It’s wise to believe “What has not been documented has never been said”, and in Bank’s case, the document says only 1 lakh is guaranteed.
🙂 banks are shady organizations in the first place. They follow murphy’s law to the hilt. Apologies for the negativity, but banks are just channels to cover rich man’s mistakes and greed at the expense of common man’s savings and regulators are hand-in-glove most of the time.