Bank Safety Rules: Do you know what will happen to your money if the bank goes bankrupt or closes down for any reason? How much money will you get? Does the account holder get more money in case of a bankrupt if the money is kept in big banks?
There are approximately 97619 banks in the country. Most of them are 96000 rural cooperative banks and 1485 urban government banks. Apart from this, there are 12 public sector banks, 22 private sector banks, 44 foreign banks and 56 regional rural banks in the country. But most people prefer to keep their deposits in big banks, especially government banks. By the way, if we talk about the biggest bank in the country, then it is HDFC Bank, after that comes ICICI Bank, at number three is the country’s largest government bank SBI.
Most people open accounts and make fixed deposits (FD) in big banks only, these figures are well known. If we count the big banks, then there are about 80 banks in the country. While the total number of banks in the country is about 96000, then the question arises whether small banks are not safe? Why do investors choose big banks only? Are big banks safer than small banks? Is keeping money in small banks not free from risk?
Reasons for bank bankruptcy
Actually, in today’s time almost everyone has their own bank account. People keep their hard earned money in these bank accounts and the bank gives interest on this deposited money. When money is deposited in the bank, people also remain worry free. But do you know that if the bank ever goes bankrupt or closes down due to any reason, then what will happen to your money? How much money will you get? Does the account holder get more money in case of sinking if money is kept in big banks? Is there a different law on bankruptcy for small banks and do investors get less money?
Let us now know, when does a bank go bankrupt? When the liabilities of a bank become more than its assets and it is not able to deal with this crisis, it becomes bankrupt (default). In other words, the earnings of the bank become much less than its expenses and it continues to suffer losses and fails to overcome this crisis, then such a bank is considered to be sunk and the regulators decide to close this bank. The most important situation in which a bank goes bankrupt is the non-recovery of the loan.
In simple words, when the bank has more liabilities than its assets and investors start withdrawing their money, then the financial condition of the bank keeps deteriorating. It is also unable to fulfill its responsibilities towards the customers. In this situation, the bank is declared bankrupt. This is called the sinking of the bank.
It is worth noting that banks run on the money of the customers. Banks pay interest to customers on their deposits and earn money by investing that money in loans and bonds at high interest rates. But when customers lose faith in the bank, they start withdrawing money from the bank. In this situation, a situation of bank run arises for the bank, i.e. at this time the bank has to sell its invested securities and bonds to return the money of the customers. Due to this, the financial crisis in the bank deepens and it reaches the point of sinking.
How much money will you get if the bank collapses?
If the bank in which you have an account closes or collapses for any reason, then in this situation you get a maximum of Rs 5 lakh under the rules, even if you have more than this amount deposited in your bank account. This process is the same in almost all government and private banks.
In India too, in case of bank collapse, the facility of deposit insurance for customers has been going on since the 60s. In the country, the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the Reserve Bank provides insurance cover on the deposits of customers under this rule. In India, before 4 February 2020, the deposit insurance on bank deposits used to be only Rs 1 lakh.
But in the year 2020, this rule was changed and the deposit insurance cover has been increased from one lakh to 5 lakh rupees. That is, the amount of up to Rs 5 lakh of the customers having an account in the sinking bank remains insured. On the date the bank’s license is canceled or the bank is announced to be closed, the customer can get a maximum of Rs 5 lakh from the deposits and interest in his account on that date.
Insured amount is received in 90 days
The Deposit Insurance system includes all types of deposits including savings account, current account, recurring account, in which insurance cover is given on the amount deposited. The special thing is that under this rule, if a bank sinks, the account holders get the money under insurance within 90 days. Under the rule, the troubled bank is handed over to the Insurance Corporation in the first 45 days. The process is completed within 90 days without waiting for the resolution.
Let us tell you, in the last few years, the financial health of Yes Bank, Laxmi Niwas Bank and PMC Bank had deteriorated. But they were rescued with the efforts of the government. Therefore, customers should not need to worry with the government, because the government saves the sinking banks. Also, RBI keeps a close eye on the banks. Because RBI keeps a close eye on the loans and transactions of every bank.
In such a situation, before any bank sinks, it takes a tough decision to secure the earnings of the common people. Apart from this, if a bank is about to sink, then DICGC takes the responsibility of giving people their money. In return, it takes a premium from the banks.
Now let’s know how to get the money?
For example, let’s assume that the bank in which you have deposited your money goes bankrupt, then what will happen to your money? The bank gives Rs 5 lakh on one account, but if you have accounts in different branches of the same bank, then how much money will you get? Under this scheme, all the commercial banks of India (foreign banks, rural banks, cooperative banks) have been included. That is, insurance of Rs 5 lakh is guaranteed in these. But cooperative societies are outside this scope. But the maximum amount of insurance available under DICGC will be Rs 5 lakh.
If you have opened accounts in many branches of the same bank in your name, then all the accounts will be considered as one. The amount of all these will be added and if the sum of all is less than Rs 5 lakh, then the amount deposited will be given. If the amount deposited is more than Rs 5 lakh, then only Rs 5 lakh will be given. No matter how much your deposit amount is.
What are the rules on FD and other schemes?
If you have made an FD in a bank and have invested money in savings account or recurring account or any other, then by adding all the amounts, you will be given a maximum amount of Rs 5 lakh. If after adding all the amounts, the amount is Rs 5 lakh or less, then the amount deposited will be given. But if the amount is more than Rs 5 lakh, then you will have to bear a loss.
What if you have an account in two different banks?
For information, it is important to know these things. If you have opened an account in two different banks and both the banks go bankrupt, then in this situation you can get an amount of Rs 5 lakh each from both the banks. Keep in mind that the maximum limit of insurance is Rs 5 lakh. If the deposited amount is less than Rs 5 lakh, then only that amount will be available which is deposited.
