What happens to your deposits if RBI puts PMC Bank like restrictions on your bank?

The lives of thousands of account holders of Punjab and Maharashtra Co-operative (PMC) Bank were thrown into disarray on Monday. This is because the Reserve Bank of India (RBI) ordered PMC Bank not to engage in any business for six months and capped depositor withdrawals. As per the RBI statement, "Depositors are allowed to withdraw a sum not exceeding Rs 1000 of the total balance in every savings bank account or current account." Later, in a press release dated September 27, 2019, RBI increased the withdrawal limit to Rs 10,000 from Rs 1,000 earlier.

However, the decision came as a surprise to customers of the bank- who are mainly traders, self-employed or daily wage earners and sent many in panic mode. "I would like to tell the public that there is no need to get panicky because we have DICGC (Deposit Insurance and Credit Guarantee Corporation) cover through which deposits of up to Rs 1 lakh are covered," JB Bhoria, the RBI-appointed administrator told ET Now. "Besides, we have our own assets which are liquid. We are trying our best to sort out the situation. Prima facie, there appear to be some NPAs, but I am told that they are all secured by the assets," Bhoria tried to assure depositors of the bank.

So as an average depositor or account holder of a bank, is this something that you should worry about? Or is this something that only happens in 'smaller, co-operative' banks? Can RBI impose such restrictions on regular commercial banks?

What RBI rules state?
As per the RBI guidelines, all commercial banks and cooperative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). Only Primary Cooperative Societies are not covered under DICGC.

Raj Khosla, founder & Managing Director, MyMoneyMantra.in says, "As per the RBI guidelines, all the commercial banks and cooperative banks are mandatorily required to insure the deposit under the Deposit Insurance and Credit guarantee corporation (DICGC). Each depositor of a bank is covered for maximum up to Rs 1 lakh. In case the PMC bank goes under liquidation, the depositors will get the money according to their deposits for maximum up to Rs 1 lakh, however, it will take a long time for them to get their savings back. PMC bank depositors cannot withdraw the money from their accounts more than Rs 1000 till the time RBI withdraws such restrictions."

As per the DICGC rules, each depositor in a bank is insured up to Rs 1 lakh for both the principal and interest amount held by him. This includes all deposits held by you in your current account, savings account, fixed deposits and so on. If the total of all the deposits held by you exceeds Rs 1 lakh, then you will be able to get only up to Rs 1 lakh inclusive of principal and interest amount if the bank goes bankrupt.

So, for instance, if PMC Bank account holder's deposit amount exceeds Rs 1 lakh and the bank goes completely bankrupt, then the depositor can only get Rs 1 lakh.

What kind of deposits are covered
DICGC covers all deposits such as savings, fixed, current, recurring and so on except for the following 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 and deposit received outside India;
• Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India

What if you have accounts at different branches of the same bank?
The insurance cover offered by the DICGC covers all different accounts of one depositor held with different branches of the same bank for maximum of Rs 1 lakh. Therefore, if you have more than one account with the same bank (even if in different branches), then, too, you will be insured for Rs 1 lakh only.

However, deposit insurance coverage limit is applied separately to the deposits in different banks. For instance, let us say you have an account with Bank A and Bank B. Then, both the accounts will be separately insured up to Rs 1 lakh.

What about joint accounts?
As per the RBI, both single and joint accounts will be separately covered under the DICGC scheme.

Sample this: You have a savings account which is operated solely by you and another one jointly operated with your spouse. In case you bank fails, then in such a case, both the accounts will be separately insured under the deposit insurance scheme.

What about your SIP and other ECS mandates?
Khosla says, "If you have given ECS mandate for your SIPs and insurance premiums and other monthly bill payments, then amounts will not be debited from your PMC bank account." It is likely that you will have to register for new bank mandates for SIPs, EMIs and other ECS debits.

What should you do?
PMC Bank was finding it difficult to meet its commitments thanks to a surge in defaults in the past six months and loans that turned sour to real estate companies, stated Economic Times news report.

You should keep in mind that although cooperative banks offer higher interest rates compared to normal public sector and private banks, these banks are jointly regulated by the state governments and RBI. Khosla adds, "RBI is much stricter with PSU and private banks with regards to compliance and regulatory issues as compared to cooperative banks. For instance, when the fraud was detected in Punjab National Bank, RBI dealt with them in much strict manner. Individuals should avoid putting all the money in their one bank account as any restrictions imposed by RBI will cut off the access to their funds."

As a depositor, it would be in your interest to keep an eye on the financial health of your bank, especially if you are a customer of a co-operative bank. Some of the key metrics that you can check are return of assets (ROA), Net NPA (non-performing assets) ratio and so on. Click here to know all the financial metrics of your bank that you can check.