What happens if your bank goes belly up:
Most banks today agreed to follow the Banking Codes and Standards Board of India’s (BCSBI), code of bank’s commitments to customers. This code, works for fair treatment of customers. However, this code does not do much for you, in case your bank goes belly up. Narayanan Raja, Chief Executive Officer, BCSBI, says, “The code looks into the commitments from banks side to its customers, but does not cover issues which the customer might have to face in case the bank goes belly up. This issue is looked into by DICGC.”
As a depositor you don’t really need to be worried about your bank going belly up, well almost. Reason being, the deposits which you make with your bank come with some sort of a safety net. This safety net, in banking parlance is an insurance provided on your deposits by Deposit Insurance and Credit Guarantee Corporation (DICGC). This corporation comes under the wings of the Reserve Bank of India (RBI) and as its name suggest, offers an insurance cover on the deposits you make and also guarantee credit. Says, a senior officer, who did not want to be named, from the DICGC, “All commercial banks are covered by DICGC. ” All foreign banks which are currently functioning in India, as well as co-operative banks and rural regional banks are also covered.
So, if you hold Rs 97,000 as principal and Rs 2000 as interest, you will be able to recover Rs 99,000 and not Rs 1 lakh. But, if you hold Rs 2 lakh, you will still get only Rs1 lakh, in case your bank goes belly up.What’s the amount: You get this cover for your funds in the savings account, as well as current accounts. Fixed Deposits and recurring deposits also enjoy this cover. The DICGC official says, “Your deposits are insured up to a maximum of Rs 1 lakh.” So, if you hold a deposit of Rs 20,000 you will only get Rs 20,000. Keep in mind, that this Rs 1 lakh amount includes both the principal as well as interest amount.
Multiple accounts –same bank: If you have multiple accounts in the same bank, DICGC will total the amount while taking into account the insurance cover and you will get a maximum of Rs 1 lakh.
Different Banks: Here the insurance ceiling will apply separately for different banks. So, from insurance point of view, it would make sense to divide your funds in few separate banks, instead of parking it all in the same bank.
Joint Accounts: If you hold a joint account, the insurance limit will be applicable to each holder of the joint account and accounts held in different names of the member of the family.
How are you paid: If the bank fails, DICGC will pay you the amount within two months from the date of liquidation of the bank. If the failed bank undergoes a merger and acquisition, the failed banks’ business is transferred to the healthier bank.
On loans: If you owe any dues to the bank, they have the right to set off such dues, and the remaining amount will be given to you by DICGC. If you have borrowed (loan) from the bank and if your bank goes bust, that does not mean you won’t be liable to pay the debt. Says, a senior, RBI officer, “The apex bank will then appoint an administrator to look into the matters of the bank. As far as loans go, they will be recovered from the borrower as per rules.”
Don’t kill your bank: Banking is all about trust. And while the banking system does seem to provide a safety net, you also have to ensure that you do your bit. Says, RBI officer, “Of course customers have to be cautious while choosing a bank, but they also have to ensure they don’t become the reason for the death of the bank. Never rush to withdraw deposits based on rumors.” Of course, it does not look like any bank is going belly up in the near future, (we hope not) but surely it does not harm to be aware and educated, were the need to arise.
Syed Abdul Zelani,Lovely Professional University.
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