PMC Bank Fiasco: What Should Consumers Do to Salvage Their Savings

The best bet is DICGC, an RBI subsidiary, which insures deposits up to Rs 1 lakh, in case the bank fails.

Panic ensued among the customers of the Punjab and Maharashtra Co-operative Bank after withdrawals were capped at Rs 1,000 per account for a period of six months.

(Photo: PTI)

The Reserve Bank of India (RBI) on Thursday, 26 September, relaxed the withdrawal limit for for customers of Punjab and Maharashtra Co-operative (PMC) Bank to Rs 10,000 per account from the earlier limit of Rs 1,000.

Nonetheless, the customers of the bank panicked after the central bank abruptly imposed regulatory curbs on the bank on Tuesday.

The bigger question that the depositors of the bank are now posed with, is that of their savings and how they may salvage them.

What’s the Best Bet to Get The Deposits Back?

The one word answer to this question is – DICGC.

The Deposit Insurance and Credit Guarantee Corporation – or DICGC – is a subsidiary of the RBI that insures all deposits such as savings, fixed, current, recurring, and so on.

All commercial and co-operative banks, including the PMC Bank in this case, come under the DICGC’s ambit. The subsidiary is liable to pay the insured amount to each depositor, in case the bank fails or is liquidated.

How Does the Insurance Work?

Each deposit in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount. The money that is insured, in case of any failure, will be given to the customer after deducting his/her dues towards the bank, within two months from the date of liquidation of the bank.

However, the insurance provision will kick in only if the bank is liquified or merged, which is not the case with PMC Bank, so far.

How Much Will the Customers Get?

As mentioned earlier, each depositor is insured up to a maximum of Rs 1 lakh for both principal an interest amount.

For example, if an individual’s account has principal amount of Rs 90,000 plus accrued interest of Rs 5,000, then the total amount insured by the DICGC would be Rs 95,000 because in this case, the insured amount has not gone beyond the limit of Rs 1 lakh.

If, however, the principal amount in that account was Rs 1 lakh, the accrued interest of Rs 6,000 would not be insured, because that was the amount over the insurance limit.

What About the Insurance Premium?

In case of deposit insurance, the premium is borne entirely by the insured bank and no amount is deducted from the customer’s deposit.

The only deduction made is the insured bank setting off dues, like operational charges, from the deposit amount.

While the DICGC solution is a concrete option, it is a rather long-drawn one and will not provide the customers any immediate relief.

What Should Depositors Do Immediately?

The first measure that the customers should undertake is to withdraw the permissible amount of Rs 1,000. While the amount might seem too small, the customers need to keep in mind that RBI restrictions, such as the PMC Bank one, take time to get lifted.

Deepak Shenoy, CEO of investment firm CapitalMind, on Tuesday, 24 September, posted a Twitter thread speculating that even a change in the withdrawal limit might be far away.

More recently, the RBI has slapped similar restrictions on Vithalrao Vikhe Patil Co-operative Bank in Nashik and the Goa-based Madgaum Urban Co-operative Bank, which continue to be under such curbs.

Are There Any More Options?

Shenoy, in his thread, suggests another measure. He says that the customers may take legal recourse against the bank, however, that too might take time to resolve.