How safe are bank deposits - Limit of DICGC cover for bank deposits

RISK IN BANK DEPOSITS - DICGC COVER

Deposits in Banks are relatively safe in Banks. However, large deposits in small banks or cooperative banks or weak banks are not totally risk free and in case of failure of these banks, you may loose a part of your hard earned money.

At present Banks are compulsorily required to get their deposits insured from Deposit Insurance and Credit Guarantee Corporation (DICGC). However, DICGC at present insures deposits only upto Rs.1 lakh. Thus, deposits in banks upto Rs.1 lakhs are safe and secure from the default by the bank. The type of deposits insured by DICGC are savings, fixed, current and recurring deposits. However, it needs to be noted that deposits kept in different branches of a bank will be bunched together for the purpose of insurance cover. (However, deposits with different banks are insured separately). Thus, we can say that through this scheme, each depositor is assured of getting upto Rs.1 lac, including the principal and interest amount, if ever your bank goes bust. This scheme is applicable to all banks in including, foreign banks, cooperative banks and regional rural banks.

The deposits held in join accounts in more than one branches of a bank are treated as single holder if the names of the holders appear in the same order in all these accounts. However, if the order is changed, then these qualify to be treated as held in different capacity and protection of Rs 1 lac is available separately.

At present uniform premium is paid by all banks to DICGC. (Banks are required to pay premium to DICGC for this insurance of the deposits @ 10 paise / Rs.100/- p.a. on all deposits). However, RBI is thinking of levying risk-based premiums on banks. If it is done so, the banks paying higher premium will be treated as more risky then the banks paying lower premium.

In case the bank gets liquidated, the liquidator sends thelist to the DICGC, which will pay the sum to the liquidator, who in turn will pass it on to the account holders / depositors. In case of merger of banks, the DICGC distributes the amount through the bank which has taken over the weak bank.

In case of weak banks, RBI sometimes imposes number of restrictions on the operation of the accounts for a limited period, e.g. before merger of the bank with other bank etc. Although, you may not face default by the bank, yet you can be put to lot of inconvenience and your business may suffer on that count.

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