Most Indians feel that bank deposits are the safest haven for their savings. Over 85% of Indians keep their savings in cash, be it in banks or at home, claims the Max New York Life-NCAER study released this year. Another study by IIMS Dataworks shows that 87% of Indians believe the government guarantees the safety of their deposits. While the government has indeed played a guardian angel to ailing banks over the years, did you know that only Rs 1 lakh of your deposits are insured if your bank goes bust? Besides, the government might have to rethink its role as the chances of a bank folding up have gone up in the past few years. The wave of mergers and acquisitions expected after 2009, when the sector is opened to foreign banks, is also likely to complicate matters. The best recourse then is to be aware of your rights and use the following tips to circumnavigate the insurance limit.
What does the Deposit Insurance and Credit Guarantee Corporation (DICGC) do?
If a bank fails, the DICGC insures each depositor up to Rs 1 lakh for deposits that are payable in India. So if you have Rs 70,000 in fixed deposits, Rs 25,000 in a savings account and Rs 20,000 in a current account, all in the same bank, and it sinks, you will lose Rs 15,000. All commercial banks in India, including branches of foreign banks, as well as most cooperative banks, are included in the DICGC net.
Does the DICGC insure only the principal deposit or the accrued interest too?
Does the DICGC insure only the principal deposit or the accrued interest too?
The cover includes the principal and interest held by an individual on the date of the bank’s liquidation or the date that the merger/reconstruction comes into force. But if the principal is over Rs 1 lakh, the accrued interest is not insured.
When is the corporation liable to pay up?
When is the corporation liable to pay up?
As per the existing laws, the DICGC has to settle all claims within two months from the day it receives the claim list from the bank. But due to the clause that says the claims can be settled only after the bank winds up operations, the process stretches indefinitely. Over Rs 400 crore of depositors’ money is stuck in liquidated banks (not including 2007-8 cases). Now the National Consumer Commission has suggested amendments to ensure speedy refunds.
How can you make your deposits more secure?
How can you make your deposits more secure?
The rule of thumb is, never put all your eggs in one basket.
• Spread your wealth in different types of accounts. For example, apart from a savings account, consider a business account. Each account will be insured separately.
• If you have a current account in your name, consider a joint account for your savings deposit. Joint accounts are insured independently of any individually owned deposits.
• Park the money in different banks, not exceeding Rs 1 lakh in each.
• The accounts in the name of different family members will be eligible for separate insurance.
Even with these strategies, the deposit insurance system compares poorly with that in the US, where a depositor is entitled to Rs 43.6 lakh per bank.
• Spread your wealth in different types of accounts. For example, apart from a savings account, consider a business account. Each account will be insured separately.
• If you have a current account in your name, consider a joint account for your savings deposit. Joint accounts are insured independently of any individually owned deposits.
• Park the money in different banks, not exceeding Rs 1 lakh in each.
• The accounts in the name of different family members will be eligible for separate insurance.
Even with these strategies, the deposit insurance system compares poorly with that in the US, where a depositor is entitled to Rs 43.6 lakh per bank.
1 comment:
Small correction here. I think if your deposit exceeds Rs.1 lac, you do not get any amount from DICGC. Not even a paisa. Can some one confirm it?
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