When a Bank Bankrupts !!

Posted In India - By NitiN Kumar Jain On Thursday, October 16th, 2008 With 6 Comments

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Yes, that’s the question I am asking today.

  • What if a bank goes bankrupt in India?
  • Have you ever thought who would repay back your money?
  • How much would be repaid to you if it gets repaid by any means?
  • Is your money in an Indian bank secured or I should put it this way, is your money in an Indian bank insured?

Yes, it is but up to a certain limit.

Read below to get your answer and add to it if you have any more information about it.

In India if a bank goes bankrupt, there are laws to protect the interests of individuals who have deposited their money in the bankrupt bank. The Deposit Insurance Corporation or DIC was formed for such purposes in early 60’s when couple of banks started going down in late 50’s and affected many Indian citizens.

Same way when a bank provides credit to people, the risk of they not paying back was really high. And this was this reason for many banks going bankrupt that time. The government decided to provide support to such banks and started insuring the small credits these financial institutions provided. Credit Guarantee Corporation of India Limited was formed to protect such banks and this was again promoted by the RBI.

So you now know that RBI protects the interests of both the lenders and the depositors.

Little later, RBI merged both of these bodies to form a single entity called Deposit Insurance and Credit Guarantee Corporation or DICGC. The job of this body is to ensure that correct measures are in place to deal with the bankruptcy of banks.

Now here is comes relevant information.

When a bank declares itself bankrupt, the depositors are paid back immediately after the assets of the banks are sold. But important thing to note here is that the entire amount is not paid back. RBI and DICGC are committed to pay back a sum of Rs 1 Lakh as the maximum amount. More than this amount is a loss to the depositors.

Good news is that the Govt. is thinking to enhance the upper limit from 1 Lakh to 2 Lakhs. Click here to read this article. (Sorry, I couldn’t find its English version, if you have it, request you to please let me know)

Personal opinion is that to keep a maximum amount of Rs 1 Lakh (2 Lakhs later if the law is amended) in your bank’s savings account. Operate multiple accounts in different banks to deposit more money.

I really hope this has opened many eyes who didn’t know about it before like it did to me when I first came to know about it.

I can now surely say that the account holders in Indian banks are more or less safe.