WHEN a bank goes into liquidation, what happens to our hard-earned money that we believed was safe? The government has constituted the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures and covers all accounts of schedule banks recognised by the Reserve Bank of India (RBI).
THE DICGC SCHEME
Deposits in scheduled banks are insured up to `1lakh. So, if a bank goes into liquidation, the depositor is paid up to a maximum of `1lakh. However, there are some interesting points.
Even if an individual has multiple accounts spread across various branches of the bank, the amount paid would be `1lakh. In other words, the insurance cover is for the actual amount of loss, subject to a maximum of `1lakh per individual per bank, regardless of the number of accounts and branches in which the amount is deposited.
However, if the same individual operates different accounts in different capacities, each account would be insured up to `1lakh separately.
In the case of joint accounts, accounts in various combinations of the same persons are added together and the combined total is insured up to `1lakh. Thus, when there are two accounts — one in the name of husband and wife and the other wife and husband — the insurance on the two accounts will be `1lakh. However, if the husband has one independent account and the wife has another, each account would be separately insured up to `1lakh. Although, logically, this may sound absurd, the scheme of insurance has been drafted in this fashion.
CASE STUDY
A company called Hardayal Singh Patel was engaged in civil and government contract works. It was required to furnish security by way of fixed deposits for undertaking the contracts. It deposited various amounts in 29 different fixed deposits, placed with Indira Priyardarshini Mahila Nagrik Sahakari Bank Maryadhit.
Due to financial bungling and internal misdeeds, the bank went into liquidation. Its licence was revoked by RBI, and an official liquidator was appointed by the state government under the Cooperative Societies Act.
When the company asked for a repayment of its deposits, only `1lakh was paid. So, it filed a consumer complaint, but it was dismissed. Next, the company appealed to the National Commission, alleging the state government had failed to exercise control over the bank and the audit inspections were not carried out in time, because of which the bank's office bearers could misappropriate large amounts. The company contended that its deposits should not be clubbed for the purpose of the DICGC scheme, as these pertained to security for different contracts.
The National Commission observed that its arguments were neither reasonable nor justified in view of the provisions of the DICGC scheme. It held that it was not entitled to any preferential treatment over other depositors, who have also to be paid from the funds made available under the scheme. Since the entitlement under the scheme had already been paid, the dismissal of the complaint was in order. However, the commission clarified in case the liquidator succeeds in recovering the amounts from the defaulters and from those who have misappropriated it, the amount so recovered would have to be distributed proportionately to all depositors. With this observation, the company's appeal was also dismissed.