Consumer Connect: 'DICGC Insurance Scheme Is A Fraud On Bank Depositors,' Says Expert

Q. I have a savings account and a few fixed deposit receipts totalling about ₹18 lakh in New India Cooperative Bank, which has been put under RBI restrictions. I have received a form from the bank giving details of various deposits held by me and seeking my consent to receive payment up to ₹5 lakh. It further says: “No further claim beyond the coverage amount, which is presently ₹5 lakh, will be made to DICGC through the bank from any of my / our accounts.” My question is: Where do depositors like me go, who have amounts in excess of Rs 5 lakh with NICB? What happens to our deposits in excess of ₹5 lakhs? —

A depositor of New India Coop Bank, Versova A. NICB has not been declared insolvent or bankrupt. Its banking licence has also not been cancelled. The bank has been put under severe restrictions by RBI under Sec 35A of the Banking Regulation Act. These restrictions are initially for a period of six months. All deposits of all banks are insured by the Deposit Insurance & Credit Guarantee Corporation. Interestingly, DICGC collects premiums from these banks on the “total amount of all deposits”. However, as per Sec 16 (1) of the DICGC Act, “the total amount payable by the Corporation to any one depositor in respect of his deposit in the same right and same capacity shall not exceed Rs 5 lakh”.

The first act of fraud begins here. Although depositors’ “total amount of all deposits” are insured and, accordingly, premium is collected on these “total deposits”, how on earth can the DICGC say that the total amount payable to any one depositor in respect of his deposit in the same right and same capacity shall not exceed Rs 5 lakh? Has anyone ever heard of any insurance company collecting premiums for the full amount and also declaring that it shall pay only some small part of the sum insured? DICGC does exactly that. This amounts to playing fraud with bank depositors with the blessings of the RBI and the central government.

Now in case NICB goes into liquidation, then the question is what happens to your amount in excess of Rs 5 lakh. DICGC will have a preferential claim on whatever total amount, including your deposits, in excess of Rs5 lakh that remains with the liquidator. According to Sec 21 of the DICGC Act, the liquidator shall first repay DICGC the amount it has paid to depositors to the extent of Rs 5 lakh. That means DICGC collects the premium from the bank on one hand and when the bank goes into liquidation it disburses only to the extent of Rs 5 lakh. And even this entire amount it claims back from the remaining deposits in such liquidated bank and that too on a preferential basis, pushing your legitimate claims on behind! Thus the chances of depositors like you getting their deposits in excess of Rs 5 lakh in such a liquidated bank become more bleak.

Where do you go in such a situation? Although this entire deposit insurance scheme is a fraud, unfortunately, it is supported by the DICGC Act. Mumbai Grahak Panchayat (MGP) has therefore called upon Finance Minister Nirmala Seetharaman to initiate appropriate amendments in the DICGC Act and ensure that all depositors of NICB are refunded their entire deposits. We do hope the government will see merits in our demand and do the needful. However, if the government fails to carry out such amendments in the DICGC Act, then MGP will be constrained to challenge the fairness of the DICGC Act itself in the appropriate court of law.

(Advocate Shirish V Deshpande is chairman, Mumbai Grahak Panchayat. Queries can be sent to him on email: shirish50@yahoo.com)

Published on: Monday, March 24, 2025, 09:15 AM IST