Deposit Insured in India, if Bank Fails

Deposit insured in India, if bank fails

                                     - S. C. Ojha

                     The depositors are secured in India if a bank fails. In India norms of banking is very strict and monitoring system is in direct control of country’s central bank Reserve Bank Of India.

                     In the beginning in 1961 an act came into existence the Deposit Insurance Act, 1961 and made effective on January1, 1962.  Up to 1977 two organizations the DIC & CGCI were looking after the function of deposit insurance and credit monitoring. The present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence with merger of DIC & CGCI on July15, 1978.

Covered Banks

                  In 1968 co-operative banks have got protection under deposit insurance with some eligibility norms. Initially only commercial banks inclusive of State Bank Of India & its group and foreign banks operating in India were covered.

                 Presently all commercial banks, foreign banks working in India, local area banks, regional rural banks, all eligible urban co-operative banks( central, state & primary co-operative banks ) are covered under the Deposit Insurance Scheme.

The insurance coverage scheme is compulsory in India and no bank can withdraw from it.

Types of Deposit Covered

                      All types of bank deposit are covered under this scheme like savings, current account, fixed deposits, recurring deposits etc.

Deposit not covered

            Any amount due on account of and deposit received outside India, any amount, which has been particularly exempted by DICGC with the prior approval of RBI are not covered under this scheme. Govt deposits Central or State, Foreign Govt deposits, inter-bank deposits, deposits of State Land Development Banks  with State Co-Operative Bank are also not covered. 

Limit of Amount Covered

            Each depositor is insured upto a maximum of Rs. 1, 00,000(Rs one lac) per bank. Insurance cover is available customer wise not scheme wise.  The deposit kept in different branches of same are aggregated and total cover provided will be a maximum of Rs. one lac. All funds held in the same capacity in the same bank will be clubbed together for the purpose of insurance cover.   Joint account will be treated as separate account and will get cover. Each joint account with different combination treated as different entity and get insurance benefit separately. All joint accounts with same person’s combination will be treated as one customer account and the combined total will be insured upto Rs, one lac.

De-registration of a bank & Liability of DICGC 
                 If bank is prohibited from receiving deposit, or it’s licence is cancelled by RBI or it is wound up compulsorily or voluntarily or it is ceases to be a banking company or on amalgamation or merger or reconstruction where acceptance of deposit not permitted, the registration of an insured bank stands cancelled. In such situation liability of DICGC is limited to extent of deposits as on the date of cancellation.

             In another situation DICGC cover is limited upto date of cancellation where a bank fails to deposit the premium amount for three consecutive periods. 

Payment of Insurance Premium

            Depositors have no liability to pay insurance premium. Deposit insurance premium is fully paid & born by the insured bank. Now DICGC increased the premium rate from 5 paise per Rs. 100 per annum to 10 paise per Rs.100 per annum since April 2005. The premium is payable half yearly in advance in April & October. The premium payment is compulsory to pay latest by 31st may & 31st October.

Payment of Insured amount

            If a bank fails or goes into liquidation, the DICGC is liable to pay to each depositor up to Rs. one lac. The payment will be made through liquidator within two months from the date of receipt of claim from the liquidator.

            In case of amalgamation or reconstruction or merger with another bank, the claim will be paid to concerned existing bank by the DICGC. The claim will be payable to transferee bank within two months from the date of claim list submission. In such case, the difference amount between the full amount of deposit or the limit of insurance, which ever is less and the amount received under amalgamation/reconstruction scheme will be paid.

           The above deposit insurance scheme came into force keeping the view to protect the interest of small depositors of the country. Now feel free to enjoy opening your account in different banks and get your deposit secured more & more.  

Historical data related to bank failure in India

                At present upto march ’08 there are 2356 banks including public sector, private & co-operative banks in India are protected under scheme of DICGC. In previous three years no instance of failure of any major bank in India.

             A number of co-operative banks have failed due to various reasons in previous years. From 01.04.06 to 30.09.08 there are 63 co-operative banks are failed and all qualified customers get payment from DICGC. In these failure banks Gujarat is on number one with 25 banks and Maharashtra is on 2nd position with 10 banks. The size of failure banks are a little bit and not in percent. It is magic of Indian economy and strategic control of the system that Indian banks are protected well.

More insurance cover expected

            In USA in a temporary phenomenon all deposit accounts are insured up to at least $250,000 per depositor until December 31, 2009 at the place of regular insurance coverage $ 1,00,000 . Unlimited insurance coverage also provided for entire amount to all non-interest bearing transaction deposit account on temporary basis up to 31.12.09 for strengthen banking system and making confidence in depositors in USA.

          Likewise USA, in India govt may think. In present context of global economic scenario for more protection of public deposit in the country, limit of insurance coverage is required to be increased to Rs. 2.5 lac from present Rs. 1 lac . 
It will more beneficial for depositors in India if RBI can liberalize banks to get additional deposit insurance cover on higher premium for their depositors for attracting more deposits and strengthening the economy.

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