Bank crisis: What happens to the money of customers if a bank collapses?

Individuals believe that banks are the safest place to keep their savings but the current banking crisis in America has affected people’s mindset recently. People are questioning and wondering what will happen to their money if the bank goes bankrupt. But there’s nothing to worry about because RBI has answers to all banking-related queries. 

For instance, if a bank collapses or goes bankrupt, the Debit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage on the deposits of customers, as per RBI’s rule. 

Earlier in 2020, the Debit Insurance on bank deposits used to be just Rs 1 lakh which means that in case the bank gets collapsed the customer can claim only Rs 1 lakh as a guaranteed sum even if they had deposited Rs 20 lakh or more. But the Modi government changed this rule and increased the deposit insurance coverage up to Rs 5 lakhs. Now, the customer can get up to Rs 5 lakh if the bank collapses. 

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Whenever the bank’s license gets cancelled or the bank goes bankrupt or the bank announces its closure, then on that date customer can get Rs 5 lakhs out of the deposit and interest in their account. 

If a bank fails, the account holders will get the protected amount within 90 days, according to the regulations of the deposit insurance scheme. All savings accounts, current accounts, and recurring accounts fall under this category. The DICGC insures all commercial banks, including Indian branches of international banks, neighbourhood institutions, and regional rural banks. 

How does the Deposit insurance scheme work?
For example, if a person had a bank deposit account with a principal balance of Rs. 4,95,000 plus Rs. 4,000 in interest that has accrued, the total amount insured by the DICGC would be Rs. 4,99,000.

Therefore, if the account's capital is Rs. 5,00,000 and there is Rs. 4,000 in accrued interest, that sum would not be insured because it exceeds the insurance limit rather than because it is interesting.

In case a customer has multiple accounts in different branches with the same capacity, the balances in all of these accounts are added together, and a maximum insurance cover of Rs 5 lakh is made available.