Thursday, April 30, 2009


We all heard the rumours about ICICI Bank going bust couple of times in the past.That rumour had created a panic among the account holders of ICICI Bank and serpentine queues were seen outside the bank and its ATM. It was very similar to the dreaded "run on bank" for ICICI.This had even forced RBI and Finance minister to come out in the open declaring ICICI Bank as a "safe" bank. So what was the fuss about? Can Indian Banks go bust and can you loose your money? The answer to this is yes. Indian banks ,like any other bank in the world are exposed to certain risks and theoretically can go bust like some of the bigger banks (Wachovia Bank in US)in other parts of the world have.And in that situation you may loose part of your money. No one in India will loose 100% of his money kept in the bank because Reserve Bank Of India insures deposits upto Rs 100000 for every customer in every bank. Any amount beyond Rs 100000 is only exposed to that risk.This scheme is called deposit insurance and credit guarantee corporation (DICGC) Lets understand this is in little more detail.

Q1 Which banks are insured by the DICGC? All Banks.

Q 2 What does the DICGC insure? In the event of a bank failure, DICGC protects bank deposits that are payable in India.The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.(i) Deposits of foreign Governments; (ii) Deposits of Central/State Governments;(iii)Inter-bank deposits;(iv) Deposits of the State Land Development Banks with the State co-operative bank;(v) Any amount due on account of any deposit received outside India(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.

Q 3 What is the maximum deposit amount insured by the DICGC? Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same capacity and same right as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Q 4 Can deposit insurance be increased by depositing funds into several different accounts all at the same bank?All funds held in the same type of ownership at the same bank are added together before deposit insurance is determined. If the funds are in different types of ownership or are deposited into separate banks they would then be separately insured.

Q 5 Are deposits in different banks separately insured? Yes. If you have deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank.
The most important thing here to note is that while RBI insures deposits only till Rs 100000 in a bank for a customer. But if the customer has multiple account in different banks (not branches) then his insurance amount goes up. For example, if you have RS 500000 in your savings account in HDFC Bank, then only RS 100000 out of RS 500000 is insured under this scheme. But if you break this down to deposits of Rs 100000 each in 5 different banks like HDFC,ICICI,SBI,AXIS and BOB,the entire Rs 500000 will be insured under this scheme. Thus you will have no worries of loosing your money in case of bank going belly up.Hence , having multiple accounts in multiple banks is a very good idea especially for deposits.

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