You can claim more than Rs 1 lakh insurance for bank savings

The amount of insurance cover offered to depositors in India is much lower at Rs 1 lakh for an account held in the same capacity with the bank. Talks have been initiated about extending this cover to customers of non-banking financial companies. Before you restrict your FDs and bank account savings to Rs 1 lakh only to stick to the insurance limits, it would be apt to know the exact amounts that are insured under by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Co-operative banks in the past have been merged or taken over and the DICGC has in the past settled many claims of depositors at co-operative banks. Last October, DICGC has made a payment of Rs 162.03 crore to depositors with Shree Siddhivinayak Co-operative Bank, while Rs 264.86 crore were settled for depositors of The Gujarat Industrial Co-operative Bank.

Though you would have been recommended to restrict money saved in bank up to Rs 1 lakh, there are chances that more than Rs 1 lakh held by you are insured by the DICGC.

The reason being that the insurance scheme offered to depositors states that up to Rs 1 lakh held in any of the insured banks by a person in the same capacity and in the same right are insured.

As per the DICGC Act of 1961, “In the event of the winding up or liquidation of an insured bank, every depositor is entitled to payment of an amount equal to the deposits held by him at all the branches of that bank put together in the same capacity and in the same right, standing as on the date of cancellation of registration.”

So, if you are holding one individual account and another joint account with someone else in the bank, then you will be entitled to get an aggregate amount of up to Rs 2 lakh, subject to your balance, in case the bank collapses. So, if you have an individual account and another account of your daughter, where you are a guardian, then both are protected up to Rs 1 lakh in case of any bank default or amalgamation as both the accounts are independently owned in legal terms.

Similarly, if you are holding two joint accounts, where both have different primary holders, they too are considered separate accounts. A DICGC senior official explains, “If Hari and Ramu have a joint account, where Hari is the first holder and there is another joint account of Ramu and Hari, where Ramu is the primary holder then both the accounts will be considered separate and will be covered for Rs 1 lakh each.”

As seen in the table, an individual can claim up to Rs 4.11 lakh (amount varies based on holding in various capacities) depending on the balance in each account and the different capacities that it is held.

But what if you have Rs 50,000 in savings bank and Rs 1 lakh of fixed deposits? The money in savings bank account and held as FD in the same name and same capacity would be considered one and insured only up to Rs 1 lakh.

Now would Rs 1 lakh worth of principal be protected or interest too? The limit of Rs 1 lakh is applicable to the total amount held, including interest on the deposit. So, if you have Rs 70,000 as deposit and Rs 6,700 as interest built then the total amount insured would be Rs 76,700, where the entire interest is covered. But an FD of Rs 1 lakh would mean that the interest earned on it would have to be foregone as the overall limit per account held in the same capacity if Rs 1 lakh.

The insurance cover extends to money held in banks as savings, fixed, current and recurring deposits of commercial banks, foreign bank branches in India, local area banks and regional rural banks under the deposit insurance scheme.

However, do not think that your deposits are protected up to the limit and the loans can be given up on in case of a bank run or liquidation then let us understand the facts. RBI regulation says, “Banks have the right to set off their dues from the amount of deposits. The deposit insurance is available after netting of such dues.”

If you wish to continue banking with the bank or get credit cards and loans from other banks, you will have to clear the dues even if the bank goes bust as your credit history would reflect the dues outstanding with other banks too.

You can make use of these additional limits available, in case you wish to park more than Rs 1 lakh with a bank and be protected during troubled times. But before you decide on any new co-operative banks to invest some money, do check whether the bank is covered under DICGC. This is because if a bank has not been paying the premium for the insurance scheme for three consecutive years then it ceases to be covered under the DICGC.