Recent RBI action against PMC Bank (Punjab and Maharashtra Co-operative) has led to widespread panic among depositors. It may be recalled that RBI had put limit on withdrawal at Rs 1,000 on PMC Bank customers. Later, it was increased to Rs 40,000. With developments like these, customers of other banks are also worried that something similar could happen to them. People are wondering what will happen to their savings if their bank shuts down permanently. Well, let’s try to answer this question as per exiting banking rules and regulations.
You get only Rs 1 lakh if your bank shuts down permanently
It is generally thought that money kept in your savings account is entirely safe. However, this is not the complete truth. The reality is that your money in your bank is safe only up to Rs 1 lakh. As per RBI rules, all commercial banks and cooperative banks come under the purview of Deposit Insurance and Credit Guarantee Corporation (DICGC). The only entities not covered under DICGC are Primary Cooperative Societies, which are different from standard cooperative banks.
DICGC mandates deposit insurance, which has a limit of Rs 1 lakh for each and every depositor in a bank. So, if your bank shuts down permanently, the maximum amount you will get is Rs 1 lakh. Even if you have several lakhs or even crore in your bank account, you will only get Rs 1 lakh if your bank shuts down. This rule is applicable even when you may have different accounts in different branches of the same bank. For example, if you have 1 lakh each in five different branches of the same bank, you will get only Rs 1 lakh if the bank shuts down permanently.
What can you do to safeguard your money?
- Put money in different banks: One of the best ways to protect your money is to keep it in different banks. That way, you can have 1 lakh secured in each bank. For example, if you have 1 lakh each in five different banks, your total deposit insurance will be Rs 5 lakh.
- Open joint accounts: Joint accounts are also treated separately and have deposit insurance of Rs 1 lakh each. For example, if you have one account in your name and another in your and your wife’s name in the same bank, the applicable overall deposit insurance will be Rs 2 lakh.
Should you be worried about losing your money in bank?
Although there have been several cases in the past where withdrawal restrictions have been placed by RBI on certain banks, depositors have managed to get their money back in most cases. Banks get into trouble largely because of NPAs (non-performing assets) or frauds. In such cases, RBI and the government try to merge the affected bank with a larger bank. This does not solve all problems of the bank, but at least depositors are able to get back their hard-earned money.
Mainstream public sector and private banks are relatively safer
It is also important to note that public sector banks and private banks are regulated more strictly by RBI. In comparison, cooperative banks have involvement of state governments. Cooperative banks usually offer higher interest rates on savings, as compared to private and public sector banks, which is why many people prefer cooperative banks. As a rule of thumb, it can be said that putting your savings in public sector banks or top rated private sector banks will be safer in comparison to depositing your savings in cooperative banks.