What Happens To Fixed Deposits In The Event Of Bank Failure?

Several banks in India have failed or gone bankrupt n the past, but, most of them have been cooperative banks. Private sector banks that do not do well, are generally taken over by the larger banks.

In 2013, there were many banks that failed and all of them were cooperative banks. To be precise the number was 16 and the amount spent in paying depositors was Rs 160 crores.

Let us see who pays these bank deposit holders...

In the event a bank fails or goes bankrupt, the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is owned by the Reserve Bank of India (RBI) pays the amount of fixed deposit.

However, there is a cap here. The DICGC does not pay the entire sum of money. It only pays up to Rs 1 lakh, including interest and principal amount.

So, let us assume that you have a deposit in Bank A of Rs 80,000, which also includes interest that amounts to Rs 9,000.

If Bank A goes bust or fails, the DICGC would pay you Rs 89,000. However, if you have Rs 2 lakhs of outstanding fixed deposit, you will get just Rs 1 lakh.

The question that may often arise is: How would I know if DICGC has insured my bank? All of the private and public sector banks in the country are insured. However, it is difficult to say in the case of very small local cooperative banks.

In this case, you must ask the bank to show the insurance certificate, which has been handed over by the Reserve Bank of India to the particular bank. This may or may not be displayed prominently by the bank.

Now, one may ask, what happens if you have two deposits of the same bank in two different branches? In such a case the deposits would be aggregated for the purpose.

So, if you have two deposits that total Rs 1.5 lakhs in two different branches, you would end-up getting just Rs 1 lakh.

For the purpose of claims the insurance and the principal amount is added together.

What happens if you have money in different banks?

If there are two different banks that go bankrupt and if you have deposits in both the banks, than your sum is not limited to Rs 1 lakh, but, your insured amount goes up to Rs 2 lakhs.

Of course two banks failing simultaneously is very rare. It is important to remember that the insurance coverage so given, is not per individual but per bank that fails.

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