Consumer Connect: How Safe & Secure Are Deposits Of Sinking Bank?

Q: I am a depositor in New India Coop Bank. The RBI has prohibited withdrawals from the bank for the next 6 months. The bank has displayed a notice saying ‘Your deposits up to Rs 5 lakh are insured with the deposit insurance and credit guarantee corporation (DICGC) and will be paid within 90 days.’ What does this mean? Is the Rs5 lakh insurance applicable to each depositor or each deposit account? For example, if I have Rs2 lakh in my savings account and Rs10 lakh in fixed deposits, what happens to the amount exceeding Rs5 lakh? Additionally, my wife and I both have joint accounts with each other. How would this work in such cases? Also, what steps do I need to take to claim this amount? I am also a secretary of my housing society. If the society’s bank accounts in NICB are prohibited, how will they manage statutory dues, including taxes?

—Saeed Siddique, Versova

A: You have raised very important questions that are on the minds of all depositors of The New India Cooperative Bank (NICB) following the RBI circular dated 13th February 2025, imposing a ban on withdrawing deposits for the next six months due to detected irregularities in the bank’s affairs. As per section 16(1) of the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, the bank deposits of a depositor in any scheduled nationalised, private, or co-operative bank in India are insured to the extent of Rs 5 lakh in that bank in the same capacity and in the same right. For instance, if you have Rs 2 lakh in your savings account with NICB and FDs totaling Rs 10 lakh in your name, your total deposits amount to Rs 12 lakh. However, according to the DICGC insurance scheme, only the first Rs 5 lakh of your total deposits are insured.

This Rs 5 lakh limit applies to the aggregate amount across all types of deposit accounts you hold, such as savings, current, recurring, and fixed deposits. It is important to note that the insurance coverage is not per account but per depositor, across all accounts in the same right. If you and your wife each hold two separate joint savings accounts, say A & B and B & A, these accounts will be treated separately for insurance purposes. Despite both parties being the same in these two accounts, the first name in each account differs, making the two accounts distinct. Therefore, both you and your wife are entitled to claim up to Rs 5 lakh each for the deposits in these two accounts.

The important question is what happens to the balance deposits exceeding Rs 5 lakh. Any amounts above Rs 5 lakh are not insured. If the bank faces financial trouble, like in the case of NICB, deposits exceeding Rs 5 lakh are at risk. It is important to note that NICB’s banking license has not yet been cancelled. This opens the possibility of an amalgamation or merger with another bank. If this happens, it would be up to the new bank to decide how much of the excess deposits it will repay.

If, for instance, the new bank agrees to repay only 60% of the excess deposits, depositors would lose the remaining 40%. If an amalgamation is not possible and NICB is wound up, creditors, including depositors with amounts over Rs 5 lakh, will be repaid from the bank’s liquidation proceeds. How much they will receive is unknown but will be distributed on a pro-rata basis.

Meanwhile, DICGC issued a circular on February 14, advising NICB depositors to lodge claims, supported by identity documents, for repayment of amounts up to Rs 5 lakh. NICB must submit these claims to DICGC by March 30, and repayment is expected to occur around May 14. Housing societies, senior citizens, and retirees with accounts in NICB are facing major challenges, and Mumbai Grahak Panchayat is working with RBI officials to find ways to mitigate these hardships.

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

Published on: Monday, February 17, 2025, 09:22 AM IST