After the PMC Bank scam famously called the Punjab and Maharashtra Co-operative bank fraud, people are asking this question, is my money safe in banks? What is this PMC bank fraud? PMC Bank has a wide network of 137 branches spread across 6 states. PMC Bank has total deposits of around Rs 11,617 Crores.
The promoters of PMC Bank favored the promoters of Housing Development and Infrastructure Ltd (HDIL) allowing them to operate password protected ‘masked accounts’. More than 21,000 bank accounts were opened by bogus or fake names just to conceal 44 loan accounts. The bank software was tampered to conceal loan accounts. A bunch of women employees in the credit department turned whistleblowers, informing RBI of the scam.
When the case came to light, worried customers rushed to PMC bank to remove hard earned money. RBI put restrictions where customers cannot withdraw more than Rs 1,000 of the total balance in their savings/current/other deposit accounts. RBI then set the limit at 10,000 and subsequently at 25,000. The new limit would allow 70% of bank depositors remove all their money. In all this we ask the question. Is your money safe in banks?
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Many bank customers in India are not aware of this. India offers lowest protection to customers in case of bank failure among most countries in the World. The Deposit Insurance and Credit Guarantee Corporation or DICGC offers deposit cover in case of bank failure to repay depositors. This is Rs 1 Lakh per depositor. You are insured for a maximum of Rs 1 Lakh for both Principal and Interest. If you have accounts in different banks, all of them are insured to a maximum of Rs 1 Lakh. But, if you have more accounts in the same bank, they are all treated as a single account. The bank pays the insurance premium for the facility. This means you get this facility free of cost.
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The current limit of Rs 1 Lakh was set way back in the year 1993. There is need to double this from Rs 1 Lakh to at least Rs 2 Lakhs per depositor. The coverage must not only be revised but also bifurcated. It must be at least Rs 1 Lakh for savings bank which easily covers around 90% of total savings deposits. Term deposits must have at least 2 Lakhs covering 70% of total term deposit accounts.
There must be separate provisions for senior citizens. This is because senior citizens and retired people have no social security and need fixed deposits for interest income. There are also suggestions that there must be incentives for depositors to invest a part of their deposits to buy bank bonds. These bank bonds offer guaranteed coupon rates on a half yearly basis and are also tax free. Why would this be a success? Income is tax free and guaranteed. This would encourage depositors to put their hard earned money in them.
The Credit Guarantee Corporation covers more than 70% of bank depositors. Sadly, bank accounts which have less than Rs 1 Lakh together are only 8% of all bank accounts. This means many bank accounts have more than the safe amount which means bank failure could be a big disaster.
Compare this with other economies like BRICS countries. For India vs Brazil its Rs 42 Lakhs and India vs Russia its 12 Lakhs. So much needs to be done here.
Now to the big question. Do you need to be worried about your money in banks? No, definitely not and here’s why. India has a unique record when it comes to banking. No scheduled commercial bank has ever gone down since liberalization. The Government makes sure a failing bank is acquired before it topples.
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Now, the Government assures customers of LIC of protection, why not for deposits in banks. Many public sector banks have merged and there is definitely the need to increase the deposit cover. This ensures that customers of co-operative banks remain protected.
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