1. Is your deposit really safe from a crisis?

The PMC Bank crisis saw a substantial portion of depositors’ money getting blocked with the bank. Many fear the worse is yet to come if the bank goes in for liquidation. So, how safe is your deposit in such a situation

Like any other insurance policy, it is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.

In India, the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI was set up under an Act of the Parliament for the purpose of insurance of deposits and guaranteeing of credit facilities. All types of deposits like savings deposits, term deposits and RDs are covered by DICGC. However, government and inter-bank deposits are not covered. Also, deposits of the state land development banks with the state co-operative bank are not covered.

DICGC covers depositors of all commercial banks and foreign banks operating in India, state, central and urban co-operative banks, local area banks and regional rural banks provided the bank with which the deposit is made has bought the cover from DICGC.

About 92 per cent of deposit accounts of the entire banking system are fully protected under DICGC involving 28 per cent of the entire deposit amount of Rs 120 lakh crore. About 44 per cent of deposits with 1,941 co-operative banks have been covered by DICGC

The limit is capped at Rs 1 lakh for both principal and interest held in a bank even if it has several deposits in different branches of the same bank. The limit has been revised periodically. From Rs 5,000 per depositor in 1968, it was revised to Rs 1 lakh in 1993. This limit has been in force for 26 years which is the longest period that a limit has not been revised.

The current upper limit of Rs 1 lakh per depositor needs to be revisited, experts say. Over the years, the composition of the bank deposits has undergone massive changes in India. The DICGC coverage should be revised and bifurcated into 2 categories, said a State Bank of India report. There should be coverage of at least Rs 1 lakh for savings bank or SB deposits (around 90 per cent of the total SB accounts) and 2) coverage of at least Rs 2 lakh for term deposits (around 70 per cent of the total TD accounts).