PMC Bank crisis: How to avail of more than Rs 1 lakh deposit insurance cover

The ongoing crisis in the Indian banking industry that involves rising non-performing assets at some banks while many others deal with frauds has shaken the faith of many depositors who trust their banks with their life savings. RBI has put in a mechanism through Deposit Insurance and Credit Guarantee Corporation (DICGC) to safeguard the interest of small depositors through a deposit insurance scheme. The scheme offers to refund depositors their deposits up to Rs 1 lakh in case the bank goes bust. We tell you how you can use the provisions of the scheme effectively to enhance the safety cover next time you book a fixed deposit with a bank:

Which banks have these insurance covers?

As per DICGC website, all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC. All state, Central and primary cooperative banks, also called urban cooperative banks, functioning in states or union territories that have amended the local Cooperative Societies Act are covered under the deposit insurance scheme.

In case of cooperative banks, the concerned amendments empower the Reserve Bank of India (RBI) to order the Registrar of Cooperative Societies of the State or Union Territory to wind up a cooperative bank or to supersede its committee of management, requiring the registrar to not take any action regarding winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the RBI. At present, all co-operative banks are covered by the DICGC. The updated list of the eligible banks enrolled into the scheme or deregistered can be checked on the DICGC website.

What does the Rs-1 lakh deposit insurance cover?

Each depositor in a particular bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount held by him in the same right and capacity as on the date of liquidation or cancellation of bank's licence or the date on which the scheme of amalgamation or merger or reconstruction come into force.

So, if you in your individual capacity own various sole ownership accounts such as a savings account, current account, fixed deposit or a recurring deposit, the insurance cover will be limited to Rs 1 lakh as a total cover that clubs all accounts together. Having deposits in different branches of the same bank under same ownership capacity will not make you eligible for higher cover as the total cover will be limited to Rs 1 lakh.

How to get higher deposit insurance?

i) Distribute your deposit in different banks

When you have to deposit an amount higher than Rs 1 lakh, the easiest way is to distribute deposits among multiple bank accounts. While booking a fixed deposit and going through the interest rate and tenure, you can ensure that the final maturity amount is below Rs 1 lakh including your savings account balance. This will ensure that both your principal and interest is fully protected.

ii) Hold account in different capacities in the same bank

Going to different banks when you have higher amount to deposit could be cumbersome. There are other options as well. If you have different bank accounts in different capacity even in the same bank, you will be eligible for Rs 1 lakh insurance separately for each account. For instance, if you hold accounts as an individual (SK Pandit; See table), as a partner of a firm, as a guardian of a minor, as the director of a company or as a joint holder of a joint account, each account type will separately be eligible for Rs 1 lakh insurance cover. So, if you keep your deposit amount below Rs 1 lakh under different ownerships, not only your principal but also the interest amount will fall under the insurance cover.

iii) By having different ownership of joint accounts

Another way to maximise your deposit insurance cover is to have different joint ownership pattern in your bank accounts. If you have an account with your spouse, you can have two different joint accounts by changing the first holder. Similarly, by involving your child or parent, you can have a joint account of three persons and by changing the order of the holding, you can have six combinations of different accounts, having the insurance cover separately for each account.

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