Understanding Deposit Insurance

[G Binani]

As per available information after Madhavpura Mercantile Co-operative Bank went into liquidation in the year 2012, cases of bank depositors' whose outstanding deposits were over one lac, were not yet settled by DICGC.

After the crisis in Punjab and Maharashtra Co-operative Bank as well as in Pune headquartered Shivajirao Bhosale Cooperative Bank , it is necessary for every one depositing money with any bank must know that settlement of claims starts only after the bank is de-licensed and declared to be liquidated. Bank deposits of every licensed bank are protected up to ₹ 1 lac through Deposit Insurance and Credit Guarantee Corporation (DICGC) under the scheme of "Deposit  Insurance" 

Now if depositor adopts systemic method described hereunder, through proper planning, can legitimately maximize insurance cover amount i.e. over and above one Lac.

Please note that if you open many deposit accounts by placing your name as the first depositor and joint with others in slightly different sequence then these deposits will be considered as held under different capacity and different rights.

For better understanding of readers, I may state that first deposit a/c may bear your single name, whereas the second a/c could be joint with your wife and similarly in the third joint with your son and the fourth joint account with your daughter, then in the fifth with you along with your wife and son.  Each such deposit could be of ₹ 1 lac. In that case all these five accounts will be considered separately for deposit insurance cover ₹ 1 lac each in all such cases. For the purposes of claim all these five deposits will be considered under different capacity and different rights.

The above method will fetch you Rs. five lacs in the even bank goes into liquidation i.e. one lac against every a/c Under Deposit Insurance scheme.

Similarly, if you choose to deposit more than five lakhs, then may expand/tinker the sequence of joint depositors, i.e. the a/c with two/three joint holders altering their sequence while keeping your first name intact (as first holder). 

For example after above five a/cs, sixth a/c can bear your son as second holder and wife as third holder. Similarly in seventh a/c wife will join as second joint holder and daughter as the third holder. In this way, you can create ten/twelve accounts with four/five family members. If you have no issues with first named depositor (due to higher rate of interest) and to move to position two or otherwise (from Income Tax angle etc) many such combinations can be made.

You may also note that a reverse combination: A&B, as well as B&A, would be treated as different, as both accounts are under different capacity and different rights and qualify for separate eligibility cover of ₹ 1 lac.

In this context, please refer to the booklet of Deposit Insurance and Credit Guarantee Corporation (D.I.C.G.C.) and then go thru FAQ number 10 (reply provides very exhaustive information with examples) using the line below. The example confirms what has been stated above.

The link to   http://www.dicgc.org.in/FD_FAQs.html

Please note that Reserve Bank is trying its best to handle both the above banks so that depositors' interest may get protected to a major extent.

One needs to have enough liquidity with oneself to meet any unforeseen emergency besides converting your deposits in planned manner as discussed above by adopting the above mentioned legal method so that in a situation of liquidation you get enough financial protection to your funds from "Deposit Insurance” offered by DICGC.

I take this opportunity to urge Government and RBI to increase the  Deposit Insurance cover  from one lac to ten lacs from a pre-announced date.

Finally I reiterate, there is a need to spread awareness among depositors community and the common public so that could secure the money to large extent.

Goverdhan Das Binani

J N V Colony, Bikaner

gd_binani@yahoo.com

9829129011 / 7976870397