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IF you are putting your hard-earned money in a lesser known private bank or a cooperative bank or a regional rural bank because they are offering a higher rate of interest, I would suggest that you limit your deposit to an amount that is less than Rs 1 lakh, including the interest earned on it. This way, even if that bank goes bust, the mandatory insurance taken by the bank will cover your loss. Of course, before you make that deposit, you also need to ensure that the bank is registered, in the first place, with the Deposit Insurance and Credit Guarantee Corporation (DICGC) and, therefore, has the mandatory insurance cover for the deposits. In fact, I would suggest as compulsory reading before you make that investment, some useful information meant for depositors on the DICGC website (www.dicgc.org.in). That would help you understand how the DICGC operates in respect of deposit insurance. You can also see on the website, the list of de-registered banks. Right now, there are 21 regional rural banks which have been de-registered. Similarly, there are many cooperative banks which have met the same state. Lack of knowledge on these issues could well deprive you of your savings and leave you poorer. Take this case decided by the apex consumer court on September 1. The case has its origin in the three-year fixed deposits invested by two sets of depositors in a private bank called Banaras State Bank (BSB). Even before the deposits could mature, BSB’s financial health deteriorated, forcing the government to come up with a scheme for amalgamation of the bank with Bank of Baroda, to safeguard the interests of the depositors. Accordingly, the government, through a notification in newspapers, made it clear that since the liabilities of Banaras Bank exceeded the realisable value of its assets, the depositors would only be paid 85.85 per cent of the deposits. The remaining amount would be paid only if these were received from the DICGC. The two sets of depositors or the complainants in this case, therefore, got Rs 15,000 and Rs 16,000 less than the promised maturity amount (promised by BSB) of Rs 1,35,000. The DICGC did not pay the remaining amount as the maturity value exceeded Rs 1 lakh. Aggrieved, they filed a complaint. The national consumer disputes redressal commission here held that there was no deficiency on the part of Bank of Baroda. It pointed out that the entire process of amalgamation had been duly notified and made known to all depositors, and objections were also invited. No objections were filed by the complainants. Subsequently, the scheme, offering 85.85 per cent of the deposits, became binding on the bank and the depositors. There was, therefore, no case for awarding any compensation to the complainants (Bank of Baroda vs Parul Agarwal, RP No 2952 of 2006, decided on September 1, 2010). As I said earlier, this
order highlights the lack of awareness among people about the risks
involved in depositing their hard-earned money in certain banks, and
also about the insurance offered by the DICGC. If the consumes in this
case, for example, were aware of it, they would have split the amounts
of their deposits to ensure maximum insurance coverage (or not
invested in that bank at all). The DICGC, a wholly owned subsidiary of
Reserve Bank of India, provides compulsory insurance cover to all your
deposits in all commercial banks, including regional rural banks,
branches of foreign banks , besides primary cooperative banks. At
present, the total number of banks insured is 2307. However, the
insurance is only for a maximum cover of Rs 1 lakh. Even if you have
different deposits in your name in different branches of the same
bank, for the purpose of insurance over, all those deposits would be
clubbed together and you will only get Rs 1 lakh, whatever may be the
amount of deposits in the bank, in case the bank goes into
liquidation.
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