The news concerning banks ceasing to carry on the business became quite common in recent years. Recently, RBI had canceled the license of one more bank, Shivam Sahakari Bank Ltd, Ichalkaranji, Kolhapur, Maharashtra. The bank ceased to carry on banking business with effect from the close of business on January 29,2021 due to sudden inadequacy of capital & decline of earning prospects.
This article captures the scenarios where the banks all of sudden cripple and depositors are on their toes. Read on to know what is the existing framework to safeguard the depositors from such horrific announcements.
My Take
I was curious to know that what happens after the banks close their doors to depositors? Do they lose all the money? I started imagining a retired person, standing helplessly outside the bank, waiting for a piece of positive news on the money that he had stashed with the bank for his daughter's marriage. Many other such instances which our news media houses would cover without wasting any time.
We can't imagine banks getting into trouble and running out of money even in our wildest dreams. The banks were for those who have money to deposit and the acumen to multiply money by depositing in the bank.
What did others do?
They used to put their money in kitchen grocery containers, mostly it would be the female head of the house who would steal a bit from her husband's pocket to save for the rainy day. These grocery containers were considered safe and were as good as a bank until throbbers lay their hands on these grocery containers.
Then what is the problem we are talking about? Well, the problem is serious because the banks were considered safe which now have become vulnerable and unsafe. Remember Dena Bank?
The Closure
Why I am writing this article today is because RBI has canceled the license of one more bank, Shivam Sahakari Bank Ltd, Ichalkaranji, Kolhapur, Maharashtra. The bank has ceased to operate with effect from the close of business on January 29, 2021. The press release ( dated Jan 29, 2021) on RBI official website shows that The Reserve Bank canceled the license of the bank as -
- There was inadequate capital with the bank and learning prospects were declining
- The bank failed to comply with the Banking Regulation Act,1949.
- The continuance of the bank is prejudicial to the interest of its depositors.
- The bank would be unable to pay its present depositors in full with its present financial position; and
- The public interest would be adversely affected if the bank is allowed to carry on its business any further.
What Happens to the depositor's money?
Well, even the depositors would not know that their deposit is insured. The Deposit Insurance and Credit Guarantee Corporation(DICGC) in the above-mentioned case would be set in motion. Now, this clearly means DICGC would pay the depositors and on liquidation each depositor would be entitled to receive a deposit amount insurance claim amount of his/her deposit up to a monitory ceiling of Rs 5,00,000/-( Rupees Five Lakhs Only).
What is Deposit Insurance and Credit Guarantee Corporation(DICGC)?
The mission of the Corporation reads - " To contribute to financial stability by securing public confidence in the banking system through the provision of deposit insurance, particularly for the benefit of small depositors."
DICGC insures the depositor's money in the banks. The banks in turn pay a premium to DICGC to cover such exigencies. All new commercial banks are required to be registered by the corporation soon after they are granted a license by RBI.
Conclusion
In such circumstances wherein the banks cease to operate and declare that there is no money left. There is no need to panic because there is a mechanism existing in the form of DICGC to safeguard the depositor's money.
Yes, the liquidation process of insurance claims might take time. Money gets locked for no fault of the depositors. If not sooner, later your money is bound to be in your wallet.
You need to have loads of patience as well!
After all, this is banking.
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