Is your money is safe with scam-hit Indian banks?

With more skeletons falling out of the Punjab National Bank’s scam cupboard, bank customers are on the edge of the seat with respect to their hard-earned money saved in banks as either savings or current account bank balance, fixed or recurring deposits.

“Things are disturbed, but Indian banks have stronger roots. I don’t think there is anything that depositors need to worry. Reserve Bank of India (RBI) has been taking the lead and making sure banks are creating reserves by way of statutory liquidity ratio (SLR), cash reserve ratio (CRR),” S V Hardikar, Head-Liabilities at Bank of Baroda.

It should be noted here that the managing director of Punjab National Bank has eased nerves by saying that the bank has enough reserves and is capable of handling the situation.

But the past instances of depositor’s requests being dishonoured in the case of Kapol Bank, Pen Co-operative, leave bank customers in a frenzy.

Is your money safe?

It helps to know ones right in case the bank – where one stashes money in the form of cash or deposits – goes sick. What happens to your money? If the bank is no longer in a position to honour payments, then it is either closed down by cancelling the license or taken over or merged with another bigger bank.

“Banks sell the assets and raise money to clear the dues. If there is a major problem then the banks are taken over and the depositor's money gets protected. In the past too, we have seen that the entire liabilities are taken over by bigger banks – take for instance the case of Sangli Bank was taken over by ICICI Bank, Oriental Bank of Commerce took over GTB, United Western Bank was amalgamated with IDBI Bank. In case of a merger the full amount of deposits gets protected as the new bank takes over not just the assets but also the liability,” Hardikar explains.

If the bank goes into liquidation, the deposit insurance and credit guarantee corporation (DICGC), which is an RBI subsidiary – pays up to Rs 1 lakh to the depositor – either directly or through a liquidator. This amount includes both the principle and the interest held by a depositor across products such as savings bank, current account, fixed and recurring deposits.

Such amount would be paid within two months after the claim list is submitted by the liquidator. In 2017 itself, claims worth Rs 3,071 lakh have been settled by DICGC for accounts across nine co-operative banks.

Will bank type matter?

Well, the law of the land doesn’t distinguish between a public sector, private sector or a co-operative bank. As long as the bank is a member and has been paying the insurance premium to protect its deposits the insurance cover of Rs 1 lakh per depositor would be applicable.

The difference, however, exists in how you hold the account or the deposits. Let’s understand how your accounts would be treated by DCIGC for the insurance claim.

A. If Mr Sharma has three fixed deposits across different branches of the same bank then he would still be liable to receive only Rs 1 lakh in total.

B. But if Mr Sharma has two deposits in his individual account and one which is jointly held with his wife then he would be protected up to Rs 1 lakh each (Rs 2 lakh) in both the different account – individual and joint

C. If he also has another account in the capacity as a partner of a firm or director of a company then such accounts are considered as held in different capacity will enjoy the insurance cover of up to Rs 1 lakh separately.

D. However, if he was the sole owner of a business and holds another account in individual capacity then the balances of the individual account and business account would both be aggregated and covered up to Rs 1 lakh maximum.

E. If Mr Sharma has more than one joint accounts where the primary holder is different: Self, wife and Son; Wife, self and Son; Son, Wife and Self then, the deposits held in all these joint accounts are considered as held in the different capacity and insurance cover will be available separately to every such joint account.

Is money with all banks safe?

Even though the customer doesn’t pay a premium for insuring deposits the banks have been charged a premium. Currently, 100 public, private, foreign, small finance and regional rural banks are insured with the corporation.

But do check whether the bank you are opting for is insured or not. As we can see from the table up to Rs 72.47 lakh crore worth of assessable deposits aren’t protected as per March 31, 2017, data. An email to RBI and DCIGC requesting the current status and details remained unanswered at the time of publication.

“The corporation may cancel the registration of an insured bank if it fails to pay the premium for three consecutive periods,” says the DCIGC Act, adding that if DICGC withdraws its coverage from any bank for default in the payment of premium the public will be notified through newspapers.

For instance, in Maharashtra alone, 103 co-operative banks have been de-registered, while 18 of Karnataka’s co-operative banks have been de-registered. Most of the commercial banks that have been de-registered are either those that have been merged or have shut India operations. Examining the leaflets provided by DICGC that need to be displayed at the bank’s branch would help. The DICGC website too offers a section where one can check the name of a bank and whether the bank is a member. “In case of doubt, depositor should make specific enquiry from the branch official in this regard,” says DICGC.

With the armoury of this knowledge on how you can get more than Rs 1 lakh in a bank insured, you should no longer get the heebie-jeebies before heading to the banks with your money during these testing times.