Reserve Bank of India Governor Shaktikanta Das, after the monetary policy meeting on 4 October, assured that the Indian banking system was “sound and stable" but events taking place in the sector cannot be ignored. The latest being the crisis at Punjab and Maharashtra Co-operative (PMC) Bank Ltd, which allegedly enabled frauds worth Rs.6,500 crore by promoters of Housing Development Infrastructure Ltd (HDIL). This has placed thousands of depositors’ money at risk.

More than 70% of PMC Bank’s total loan book has an exposure to HDIL, whose inability to repay its debt may lead to shutting down of the lender. But what happens to depositors and their money?

The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a bank fails. Here is a list of five things you should know about the insurance scheme that is provided by the corporation:

Who are insured by the DICGC ?

The corporation covers all commercial and co-operative banks, except in Meghalaya, Chandigarh, Lakshadweep and Dadra and Nagar Haveli. Only primary cooperative societies are not insured by the DICGC. All bank deposits--savings, fixed, current and recurring—payable in India are covered. However, the DICGC does not include the following types of deposits:

· Deposits of foreign governments

· Deposits of central/state governments

· Inter-bank deposits

· Deposits of the state land development banks with the state co-operative bank

· Any amount due on account of any deposit received outside India

· Any amount specifically exempted by the DICGC with previous approval of RBI

How much will a depositor get as insurance?

Insurance limit for each depositor in a bank is capped at Rs.1 lakh, including both principal and interest amounts. In case a bank goes into liquidation, depositors get the insurance money as per their deposits for a maximum of up to ₹1 lakh. The same math applies if a failed bank is amalgamated, merged or reconstructed. If a person keeps the deposits in different branches of a bank, they are paid a maximum of up to Rs.1 lakh only on the aggregate amount.

What happens to single or multi-account holders?

A single-ownership account or an account owned by a single person will only get an insurance cover of a maximum of up to ₹1 lakh irrespective of funds kept in one or more branches of the same bank. The DICGC adds all funds held in different branches before determining the deposit insurance. In case of different types of ownership, the corporation would insure them separately. If a depositor has two separate accounts in two banks and both shut down, then they are covered separately.

What about deposits held in joint accounts?

If individuals jointly hold more than one deposit account in one or more branches of a bank and if their names are registered in the same order everywhere, then all these accounts are considered as one. The DICGC calculates the deposit insurance for such depositors by adding funds from all the branches and allowing insurance of up to ₹1 lakh on the aggregate amount.

However, depositors get separate insurance cover of up to Rs.1 lakh for joint accounts where the names appear in different order or the set of names are different in each account.

How do you know if your bank is DICGC insured?

The deposit insurance scheme is mandatory for all banks and no bank can voluntarily withdraw from it. However, the DICGC has the power and right to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. If a bank is no more under the DICGC’s coverage following the defaults, then depositors are notified through newspapers.

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