Bank Deposit Insurance - how much money you will get if a Bank goes bust?

Bank Deposit Insurance - how much money you will get if a Bank goes bust?*

The DICGC has started the process of repaying the Deposits in CKP Co-op Bank. Letters have been posted to the depositors*. 

*Who are eligible to get back their deposits and how much?*

*We take a look at these questions:*

Last year, the Bank Deposit Insurance Cover has been raised five-fold to Rs 5 lakh — a huge comfort for small depositors - some of whom have been staring at losing their money kept in fraud-hit and mismanaged cooperative banks. 

Now if any bank fails, the depositors will get as much as Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI).

It took 27 years and a Rs 6,670-crore fraud in multi-state Punjab and Maharashtra Co-operative Bank to raise the cover. The latest revision, sixth since it started in 1962 with a Rs 1,500 cover, has been long overdue. Even though it’s a big jump from Rs 1 lakh, the last revision in 1993, it is still less than what the amount should have been after adjusting inflation.

Let’s look at the details of the deposit cover:

◆ Every depositor in a bank is insured up to a maximum Rs 5 lakh for both principal and interest. 

◆ If an individual opens more than one deposit accounts in one or more branches of a bank (savings/current accounts and/or fixed/recurring deposits), all these will be considered as one account and the aggregate insurance cover will be Rs 5 lakh.

◆ But if a person opens more than one such account in her capacity as a partner of a firm or the guardian of a minor or director of a company or trustee of a trust or in a joint account, say with her husband, in one or more branches of a bank, each of these accounts will enjoy the insurance cover up to Rs 5 lakh, separately.

● When it comes to the joint accounts, there is a catch. If more than one deposit account (savings, current, recurring or fixed) are jointly held by say three individuals in one or more branches of a bank with their names appearing in the same order (A,B and C — three names, for three accounts) then all three accounts are considered held in the same capacity and the insured account will be capped at Rs 5 lakh. 

◆ To ensure Rs 15 lakh insurance coverage (Rs 5 lakh multiplied by three), the joint holders of three accounts should be shown as A, B and C; C, A and B; and A, C and B. Done in this fashion, the deposits held in these joint accounts are considered as held in the different capacities with different rights. 

◆ Accordingly, the insurance cover will be available separately to every such joint account (I repeat, provided the names appear in different order) to the tune of Rs 5 lakh.

◆ The depositors of any bank that goes for liquidation or is merged with another after February 4, 2020, will get the cover. 

◆ However, the cover is not applicable to the depositors of those banks that have been already deregistered and whose licences have been cancelled before February 4. The deposit coverage of such banks remains up to Rs 1 lakh irrespective of whether the claims have been submitted or not.

◆ Shareholders will not get any money for the shares they hold in a Bank.

Trust that this information is useful for all and clears any questions on the subject.

*Dayanand Nene*