Yes of course. They are quite safe. All thanks to strong reputation and supervision by Reservation of India and system of internal control of banks, they are well-capitalized, well managed and effectively regulated. Though the recent crises at the Punjab, Maharashtra Corporate (PMC) and others like it. That has made people worried about it.
Suddenly, the safety of bank deposits has become an issue. What will happen if the bank goes bust? We understand banking has progressively become risky with several pressure being exerted on all sides. But, your deposits up to a particular limit (presently 1 Lakh per depositor) are insured and paid back to you in the event of failure of the bank. Within an upper limit of Rs. 1 Lakh for a deposit, intuitively the bank needs not to take cover for the bulk of the deposit.
As a financially literate Indian citizen, you must know how you can save your hard money in the banks so that you can manage your risk. In this blog, we are going to tell you the protecting layers of the bank deposition. So, let’s get started.
What is deposit insurance?
When it comes to insurance we think about coverage and protection. So, like any other insurance policy, this insurance gives people protection against the insolvency of the banks. In the event, if a bank gets liquidated, and you have deposit insurance then within 1 Lakh rupees will be returned to you.
Indian Government has set up Deposit Insurance and Credit Guarantee Corporation under RBI to protect depositors if banks get failed. All the bank deposits-savings, current, fixed and recurring- payable in India are covered.
Institutions covered under the deposit insurance:
All commercial banks including foreign banks functioning in India, local areas bank and regional rural banks.
All co-operative banks across the country- State, Central, and primary cooperative banks and urban cooperative banks.
There are some states which are unable to give the facility of the deposit insurance, such as- Lakshadweep, Chandigarh, Dadar and Nagar Haveli.
What has been the penetration of the deposit insurance?
Around 92 percent of bank accounts of the whole financial framework is completely ensured under DICGC including 28 percent of the entire bank accounts of Rs 120 lakh crore. Around 44 percent of stores with 1,941 co-employable banks have been secured by DICG.
What is the current limit that will be covered under deposit insurance?
The limit is topped at Rs 1 lakh for both principal and interest held in a bank regardless of whether it has a few bank accounts in various branches of a similar bank. The limit has been revised intermittently. From Rs 5,000 for each investor in 1968, it was updated to Rs 1 lakh in 1993. This cutoff has been in power for a long time which is the longest period that a limit has not been revised.
Things to keep in mind while opting for deposit insurance:
The insurance limit for each depositor is upto 1 Lakh, including both principal and interest amounts.
All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined.
If an individual opens more than one account in the same bank, therefore the balance in all these accounts is aggregate and insurance cover is available up to 1 Lakh.
If the same account holder also opens other deposit accounts in his capacity as his partner of guardian, then such accounts will also enjoy the insurance cover up to 1 Lakh separately.
If more than one deposit account (savings, current, recurring or fixed deposit) are jointly held together held by individuals in one more branch of a bank. Accordingly, balances in all these accounts will be aggregated for the purpose of determining the insured amount within the limit 1 Lakh.
What sorts of banks are not guaranteed by the DICGC?
The accompanying kinds of banks are not secured under store protection by DICGC
(I) Deposits of foreign Governments;
(ii) Deposits of Central/State Governments
(iii) Inter-bank stores;
(iv) Deposits of the State Land Development Banks with the State co-employable bank;
(v) Any amount due on account received from outside India
Is it good to put money on the nationalized bank?
Yes, it is good to keep money at the nationalized bank because if nationalized banks get failed government will give money to those banks through RBI to protect from the liquidation. In recent years, the Indian government finance department has offered packages to six nationalized banks to minimize their liquidation. Along with that, IDBI Bank to get Rs 9,000 crore relief from govt, LIC. When it comes to risk the nationalized has lower than private limited banks.
After seeing the conditions of the depositors of PMC banks, it is very tough for the Indian citizen to deposit huge amounts of money in the private banks. But, if you opt for deposit insurance and keep money in the bank within 1 Lakh then there will be no risk. Because as per the deposit insurance norm, the current upper limit of Rs 1 lakh per depositor needs to be revisited.