The Reserve Bank of India has cancelled the licence of an Uttar Pradesh-based United India Cooperative Bank on account of lack of adequate capital and earning prospects.
As a result, the guarantee enforced by the DICGC (Deposit Insurance and Credit Guarantee Corporation) will come into force.
Once the liquidation takes place, the bank depositors become eligible to receive the deposit insurance amount up to a maximum of ₹5 lakh.
In October last year, the DICGC released payments to the depositors of 17 cooperative banks.
For the unversed, whenever a bank is closed on account of bankruptcy or some other reason, its depositors become eligible to receive their deposit money up to the maximum limit of insurance cover provided by DICGC.
Let us understand how this works. But at the outset, we explain the meaning of DICGC.
What is DICGC?
The wholly-owned subsidiary of RBI, DICGC provides insurance of up to ₹5 lakh to each depositor of every bank in the country.
This insurance is extended to the depositors of all the banks including foreign banks, cooperative banks, local area banks and regional rural banks in all the states and Union Territories (UTs).
The insurance amount of ₹5 lakh is the sum total of all the deposits including savings, current, recurring and fixed deposits held by one depositor.
However, some deposits are not covered under the insurance such as the money deposited by foreign governments, deposits by Central or state governments, Inter-bank deposits, Deposits by the State Land Development Banks with the State co-operative bank and deposits due and received outside of the country.
The insurance amount of ₹5 lakh includes all deposits such as savings account, fixed deposits and recurring deposit.
For example, a woman named Sunita has a total of three deposits in a bank amounting to a total of ₹7 lakh. The break-up of deposits is shown here as follows:
| Savings | ₹ 3.5 lakh |
| Fixed deposit | ₹2 lakh |
| Recurring Deposit | ₹1.5 lakh |
| Total deposits | ₹7 lakh |
| Deposit insurance limit | ₹5 lakh |
Suppose, the bank in which Sunita holds an account goes bankrupt and is, therefore, closed. Then, the deposits will be covered under the deposit insurance. Since the maximum amount of insurance is ₹5 lakh, Sunita will be entitled to receive ₹5 lakh instead of ₹7 lakh.
On the other hand, if the total deposits fall short of ₹5 lakh, then she would have received the amount equivalent to the deposits.
