The Reserve Bank of India (RBI)'s latest directive has caused panic among depositors in Maharshtra's Shirpur Merchants' Co-operative Bank, as they are unable to withdraw their funds, for at least for next six months. The central bank's withdrawal restriction among several other restrictions comes after concerns about the deteriorating financial health of the bank. Other restrictions are bank cannot, without prior approval of RBI in writing grant or renew any loans and advances, make any investment, incur any liability including borrower of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in the discharge of its liabilities and obligations, etc. Further, customers can't withdraw funds from their accounts, but the bank is allowed to set off loans against deposits.
"Considering the bank's present liquidity position, no amount from the total balance across all savings bank or current accounts or any other account of a depositor may be allowed to be withdrawn, but are allowed to set-off loans against deposits subject to the conditions stated in the above RBI directions," RBI said.
Similar actions were taken by the RBI in the past against many notably cooperative lenders in the country and most importantly not all co-operative banks are the same, even if they are all called 'co-operative banks'. But first things fast, how safe are the customers?
In case a bank fails depositors would be entitled to receive deposit insurance claim amount of his or her deposits up to Rs 5 lakh under insurance of Deposit Insurance and Credit Guarantee Corporation, under DICGC Act. If you have more than one account with the same bank, even if they are in different branches, still you will be insured for only Rs 5 lakh. The depositors may contact their bank officials for further information or visit www.dicgc.org.in, RBI said. But here the stressed bank has failed and RBI clarifies that its directions should not be construed as cancellation of banking license by RBI. The bank will continue to undertake banking business with restrictions till its financial position improves.
Further after recent amendments to the DICGC Act, now the customers of stressed banks placed under moratorium can get their deposits (of up to Rs 5 lakh) back within 90 days of the start of the moratorium. It is a two-phase mechanism, where, “The stressed bank is expected to collate all information regarding the number of claimants and claim amount and inform DICGC about it within the first 45 days. Within the next 45 days, DICGC is mandated to process the claim and make payment to each eligible depositor,” according to Finance Minister Nirmala Sitharaman. The depositors may contact their bank officials for further information. Details may also be accessed on the DICGC website: www.dicgc.org.in, RBI said in the release.
DICGC covers all deposits including savings, fixed, current, recurring and so on except deposits of foreign governments, deposits of central or state governments, inter-bank deposits etc.
State Cooperative Banks, District Central Cooperative Banks, and Urban Cooperative Banks, registered with DICGC get insurance coverage up to Rs 5 lakh on their deposits as they are regulated by RBI or NABARD. But when primary co-operative societies that run primary co-operative banks, originally meant to support farmers, engage in banking operations and use the term 'bank' in their names, they don't get DICGC coverage. This practice of using banks in their names has been warned against by RBI.
