Soon after the Silicon Valley Bank collapsed in California, a sense of panic spread among depositors for the safety of their money, particularly the ones holding large deposits in the bank.
The deposit insurance rules in the US entitle depositors to receive $2,50,000 in case of a bank failure. Although depositors can receive a higher amount and even the entire value of their deposit if the government intervenes, but the guarantee on deposits given to depositors stands at $2.5 lakh.
Now one might wonder as to what would happen to the depositors in India and how much they are entitled to receive in case a similar bank crash takes place here, which the God may forbid.
The bank deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
The facility of deposit insurance was extended to depositors in 1962 but the insurance amount was quite low at ₹one lakh until 2020. It was, however, raised to ₹5 lakh in March 2020.
In other words, in case of a bank’s bankruptcy, each depositor is entitled to receive a sum of ₹5 lakh or the amount of their deposits, whichever is higher.
What do deposits cover?
The deposit insurance is given to depositors of all banks including commercial bank, branch of a foreign branch, regional rural bank or local area bank.
These deposits covered under insurance entail savings account, fixed deposits, current account as well as recurring deposits. So, ₹5 lakh amount is a sum total of all these deposits.
Let us suppose, a depositor holds a number of accounts in a bank, then all the deposits held in different branches are added for the purpose of arriving at the figure of deposit insurance.
For instance, when a customer holds ₹one lakh in four accounts with one bank, then the total insurance sum would be ₹4 lakh.
Time to settle the claims
It is worth mentioning that the provision of deposit insurance becomes effective only in case of bank’s liquidation. It’s only after the liquidation that the depositors’ insurance claims are settled.
Earlier it used to take a long time to settle the deposit insurance claims but as per the new rules introduced in September 2021, DICGC is expected to settle these claims in a maximum of three months after the bank is placed under RBI directions.
The process is scheduled to start as soon as the RBI passes directions on a bank, and within 45 days, the bank is meant to send a list of claims to the DICGC.
Following this, a month after receiving the list, the deposit insurance corporation is supposed to validate the details online, and to transfer the money in another 15 days.