Worried about bank deposit? Increase your deposit insurance coverage to Rs.300 lacs.

Worried about bank deposit? Increase your deposit insurance coverage to Rs.300 lacs.

By Vijay Rustogi

The Author deals with the current insurance of the bank deposit, its understanding and how to plan to increase the insurance coverage of bank deposit multiple times.

YES BANK CRISIS

The public deposits the money in the Bank traditionally believing to be the safest way to save hard earned money for the future.   But the Yes Bank type crises shakes the belief. The capital hungry Yes Bank was placed under a Moratorium by Reserve Bank of India  restricting deposit withdrawals at Rs.50000 per account for a period of one month.   In the similar way PMC Bank crisis memory has not yet faded away where one of  the depositor committed suicide.

BANK DEPOSIT INSURANCE

Amidst crisis there is statement  that general public need not worry as there is an insurance of  Rs.5 lacs. In case the deposit  is equal to or  less than Rs.5 lacs, it is insured with Deposit Insurance and Credit Guarantee Corporation.

DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION  (DICGC)

DICGC is governed by the law - 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' (DICGC Act) and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961'.  DICGC is having its headquarter at Mumbai. Mission of the DICGC is -  “To contribute to financial stability by securing public confidence in the banking system through provision of deposit insurance, particularly for the benefit of the small depositors.” At the end of March 2019, DICGC had a Deposit Insurance Fund of Rs.93750 Crores.

WHICH BANKS ARE COVERED

Banks covered by Deposit Insurance Scheme

A) All commercial banks including the branches of foreign banks functioning in India,

B) Local Area Banks and Regional Rural Banks.

C) Co-operative Banks

The law requires registration of banks with DICGC once the licence is granted by Reserve Bank of India. Once registered, the Bank cannot withdraw from the Insurance Scheme.

WHETHER MY BANK IS COVERED?

Please check from the Appendix-1. It can  be checked from the printed leaflets of the bank seeking deposit.    In case of doubt, depositor should make specific inquiry from the branch official in this regard.  The list of the banks covered in Deposit Insurance is also can be checked from DICGC website:  www.dicgc.org.in

INSURANCE COVERAGE LIMIT

The current  insurance cover is limited to Rs.5,00,000/- 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. The limit is recently increased with effect from 4th Feb 2020, earlier limit was    Rs.1,00,000/-.  Wherever Bank has dues to be recovered from the depositor, the same will be allowed to be set off for the purpose of insurance protection.   Example deposit is Rs.400000/-, while bank dues are Rs.3000, the deposit amount protected by DICGC is Rs. 397000 ( Rs.400000- 3000).

WHICH TYPE OF DEPOSIT(S) IS COVERED?

DICGC insures all bank deposits, such as-

I) Saving Account,

II) Current Account

III) Fixed Deposit Account

IV) Recurring Deposit Account

However, the following types of deposits are not covered - .

· Deposits of foreign Governments;

· Deposits of Central/State Governments;

· Inter-bank deposits

· Deposits of the State Land Development Banks with the State co-operative banks;

· Any amount due on account of and deposit received outside India

WHETHER INTEREST IS ALSO COVERED? 

The DICGC insures principal and interest upto a maximum amount of Rs. 500000/-.   For example,

Case	Name	Principal	Accrued Interest	Total	Amount covered in Insurance	Remarks
		Rs.	Rs.	Rs.	Rs.
1	Ramesh	400000	40000	440000	440000	Fully covered
2	Suresh	490000	50000	540000	500000	Partly covered
3	Mitesh	500000	60000	560000	500000	Interest not covered

WHO BEARS THE COST OF PREMIUM?

The premium  is payable by individual Bank.  The current rate of premium is 12 paise per  Deposit of Rs.100 per annum.   The Depositor need not be worried about the premium.  Bank do not charge this premium from the Depositors.

IS THERE ANY WAY TO INCREASE THE COVERAGE OF DEPOSIT

Yes.  But the depositor cannot insure directly with DICGC.  The insurance scheme is a relationship between the Bank and DICGC.  The limit is Rs.500000/- per Depositor.  After understanding the intricacy  of the scheme,  we may find out the way to increase the deposit coverage for each individual/family.

A) Within the same Bank:

Coverage limit of Rs.500000 is per Bank per depositor for deposits held in the same capacity and same right.

I)If an individual opens  deposit account in another branch of the same bank whether differently I.e. savings and/or recurring and/or fixed deposit,  all these are considered as accounts held in the same capacity and in the same right. Therefore, the balances in all these accounts are aggregated and insurance cover is available upto rupees five lakhs in maximum. Opening the account in different branch of the same bank is not the answer.

Ii) If a person plans properly the coverage limit can be increased by opening the account in different capacity -  for example there is a family of  Shri Avinash Verma  consisting of himself, Smt Renu, Ms Ruby Daughter, Master Pankaj Son.  

The coverage will be as under:

Case	Account Name	Amount in Deposit	Insurance Coverage	Remarks
1	Avinash Verma	3000000	500000	Only 5 lacs covered
2	A) Avinsh Verma B) Renu C) Ruby u/g Avinash Verma D) Pankaj u/g Avinash Verma E) Joint Account of Avinash Verma  and Renu F) Joint account of Renu  and Avinash Verma	500000 500000 500000 500000 500000 500000	500000 500000 500000 500000 500000 500000	Total 30 lacs gets fully covered.  Joint account having different sequence is treated differently

B) Multiple Banks:  

Insurance  Scheme is Per Bank for each depositor.  That means if a person keeps deposit in say 10 banks properly spread, the coverage gets automatically increased.  If a person plans properly as illustrated in (A) (ii)  above, and then copies the same to 10 Banks, the coverage can be extended to Rs.300 lacs.   In fact there is no such limit of 10 banks and individual can open even in more banks for extra coverage and proper spread.  Though net banking facility helps in managing higher no of banks, however, there would be a practical  limit as to how many banks a person can manage. The planning may also mean transfer of some amount from one bank to another so that all bank deposits remain fully covered through Deposit Insurance Scheme.

SETTLEMENT OF CLAIM

In the event of failure to return the bank deposits, the Banks goes for the  winding up or liquidation.   Every depositor of the bank is entitled to payment of an amount Equal to his deposits held by him in the same right and in the same capacity in all the branches of that bank put together, standing as on the date of  winding up or liquidation) subject to the set off of his dues to the bank. However, the payment to each depositor per Bank is subject to the limit of the insurance coverage of Rs.500000/-.  

In case Bank fails to pay the full depsosit but pays partly,  the DICGC pays the difference between the full amount of deposit or the limit of insurance cover in force at the time, whichever is less, and the amount actually received by him from the Bank.

The DICGC makes the payment of the eligible amount to the liquidator/chief executive officer of the transferee / insured bank, for disbursement to the depositors. No payment is made directly to the depositors.

CONCLUSION:

Proper information and planning helps in increasing the coverage limit to a level of Rs. 300 lacs and above per family.