RBI Imposes Restrictions on Shirpur Merchants' Co-operative Bank; Deposit Insurance Coverage Explained
MAS Team | 15 April 2024
The recent directive from the Reserve Bank of India (RBI) has left customers of Shirpur Merchants' Co-operative Bank in Maharashtra unable to access their funds. The RBI's decision, prompted by the deteriorating financial health of the bank, has led to restrictions on withdrawals and other transactions for a period of six months, causing distress among thousands of depositors who are now unable to access their savings.
This action by the RBI is not unprecedented, as similar measures were imposed earlier on lenders such as PMC Bank and YES Bank.
The RBI's instructions, outlined in a press release dated April 8, 2024, prohibit the bank from granting or renewing loans, making investments, incurring liabilities, disbursing payments, or accepting fresh deposits without prior written approval from the RBI. Additionally, customers are restricted from withdrawing funds from their accounts, although they are allowed to offset loans against deposits as per certain conditions specified by the RBI.
In the event of a bank failure, depositors are entitled to a deposit insurance cover of up to Rs5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act. This coverage applies to all types of deposits held in the bank, including current accounts, savings accounts, fixed deposits, etc.
The RBI has assured customers of Shirpur Merchants' Co-operative Bank that eligible depositors will receive the deposit insurance claim amount of up to Rs5 lakh from the DICGC. This amount covers both the principal and interest in the accounts, subject to the submission of willingness by the concerned depositors.
Previously, depositors faced significant delays in accessing their funds in the case of bank failures or moratoriums. However, amendments made to the DICGC Act in 2021 ensure that customers of failed or stressed banks placed under moratorium will receive their deposits (up to Rs5 lakh) within 90 days of the moratorium commencement. This period is divided into two phases of 45 days each, during which the bank is required to collate claim information, and the DICGC processes and disburses the claims to eligible depositors.
It's important to note that the DICGC covers various types of deposits except those of foreign governments, central/state governments, inter-bank deposits, and certain other categories. Additionally, the maximum insurance coverage per depositor, irrespective of the number of accounts or branches, is capped at Rs5 lakh under the current scheme.
In conclusion, while the RBI's measures may cause temporary inconvenience to customers of Shirpur Merchants' Co-operative Bank, the deposit insurance coverage provided by the DICGC offers a safety net for depositors in case of bank failures. Customers are advised to stay updated through official channels and contact bank officials or visit the DICGC website for further information regarding their deposits and insurance coverage.