From Shirpur Merchants to PMC: What happens to your money when banks fail?
Illustration: Ajay Mohanty
The Reserve Bank of India (RBI) recently imposed restrictions on the Shirpur Merchants’ Co-operative Bank in Maharashtra due to its deteriorating financial condition. As a result, customers will not be able to withdraw their money for the next six months, Business Standard reported. This measure is similar to previous actions against other banks, such as PMC Bank and YES Bank, aimed at safeguarding the bank’s stability.
What should you do now?
If you are a customer of Shirpur Merchants’ Co-operative Bank, it is crucial that you understand your rights and what steps you can take during this period.
What are your rights if a bank goes bankrupt?
Deposit Insurance: The Deposit Insurance and Credit Guarantee Corporation (DICGC) Act ensures that every depositor is insured up to Rs 5 lakh, covering both principal and interest amounts for all types of accounts within the same bank.
Eligible depositors can claim their insurance up to Rs 5 lakh by submitting their willingness to the DICGC, as per the regulations.
How do you receive your money?
Previously, it could take months to access funds from failed banks. However, changes to the DICGC Act in 2021 have streamlined this process:
90 Day Refund: Deposits up to Rs 5 lakh will be refunded within 90 days of the start of the moratorium. This period is split into two phases: the first 45 days during which the bank collects and submits the claims data to the DICGC, followed by a further 45 days during which the DICGC can process and pay the claims.
“DICGC aims to resolve the claims of insured depositors expeditiously, generally within two to three months from the date of receipt of claim list from the liquidator of the failed bank,” said Adhil Shetty, CEO, Bankbazaar.com.
“In the event of a bank liquidation, the claims of insured depositors are given high priority. Insured depositors are compensated before other creditors in the liquidation process,” he explains.
He further explains, “DICGC provides insurance cover for both principal and interest up to a maximum of five lakh rupees. For example, if a person has an account with principal amount of Rs 4,95,000 and accrued interest of Rs 4,000, the total amount insured by DICGC would be Rs 4,99,000.
However, if the principal amount in the account is exactly Rs 500,000, the interest accrued will not be covered by the insurance. This exclusion is not because it is interest, but because it represents an amount that exceeds the insurance limit.”
Are all your deposits insured?
DICGC provides coverage for all types of deposits including savings, fixed, short-term, recurring, etc., except the following categories:
a) Deposits from foreign governments
b) Deposits of Central/State Governments
c) Interbank deposits
d) Deposits of state-owned banks for land development with a state-owned cooperative bank
e) Any amount due on account of a deposit received outside India
f) Any amount specifically exempted by the company with the prior approval of the Reserve Bank of India.
If your deposits in one bank exceed Rs 5 lakh, you are only insured for a maximum of Rs 5 lakh, including both principal and interest.
What about different branches or joint accounts?
Inter-branch cover: The DICGC insures all deposits made at different branches of the same bank, but the total cover is limited to Rs 5 lakh.
Joint accounts: The DICGC treats separate and joint accounts separately, meaning each is insured up to Rs 5 lakh.
Shirpur Merchants’ cooperative banking customers can now:
1. Contact bank officials for detailed information.
2. Visit the DICGC website (www.dicgc.org.in) for further guidance on the claims process.
Statement from RBI on Shirpur Merchants Co-operative Bank
In a press release dated April 8, 2024, the regulator said, “With effect from the close of business on April 8, 2024, the bank shall, without prior written approval of RBI, grant or extend loans and advances, make investments in the financial sector.” , assume any liability, including to the borrower of funds and accepting new deposits, disbursing or agreeing to disburse any payment, whether in discharge of its obligations and liabilities or otherwise…”
The regulator also said, “Considering the current liquidity position of the bank, no amount should be withdrawn from the aggregate balance of all savings bank or current accounts or any other account of a depositor, but loans may be set off against deposits. subject to the conditions stated in the above RBI directions.”
First print: April 12, 2024 | 4:48 pm IST