25 April, 2017

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Do You Know What Happens If Your Bank Collapses – Will You Get Your Money Back??

Do You Know What Happens If Your Bank Collapses – Will You Get Your Money Back??

By CA Ankit Gulgulia (Jain)

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You Save Your Money In Banks...But Do You Realise 
That Banks Themselves Are
 UNDER THREAT!
Now, I'm sure all of us are in favour of an inclusive banking sector...
We need more and more people to get into the formal economy and get away from cash transactions. And our Government seems to have the right idea through their Jan Dhan Yojana and so on... but do you know that if the bank keeps incurring these NPA’s or reaches a stage of collapse or liquidation .. what will happen to your money .. No ?? … Read on then (I am sure you will be surprised)
The banks, that we are supposed to entrust with our hard-earned money, are themselves under threat!
Yes, these banks, in the past, have happily given away our money to businesses which cannot repay it now.
Adding to crores in Non-Performing Assets.


In fact, the situation is so bad that many corporates which got these loans are now in the 'stressed companies' bracket. In other words, the profit that they make, even before paying tax, is less than the interest they need to pay on their loans.
If these companies aren't earning enough to even pay interest on their loans...do you think they could pay back the principle...ever?
And almost 40% of the loans given out by Indian banks are to companies which are now stressed.
To make the matters worse...
Even within these stressed companies...there seem to be some 'favourites'.
1.    A mere 50 companies account for 71 percent of the loans owed by the stressed companies. (owing Rs 20,000 crore each, on average)
2.    The top 10 companies on an average owe Rs 40,000 crore each.
A large chunk of these bad loans are because the loans were not given on merit but maybe given out to appease the political masters.
Or for still other reasons.
But the undeniable fact is that a large part of these loans was given out to people who were in the end not able to repay them.
In fact, as revealed by K C Chakrabarty in one of his recent interviews...
·         "Now over Rs 6,00,000 crore is the NPA now. If you include Rs 4,00,000 crore write-off, then I will say Rs 10 lakh crore is the real NPA. Public money has gone. To whom it has gone, nobody knows."
So, almost Rs 10 TRILLION of tax-payer's money has already been wasted by the government-run banks...
Almost 10 Trillion Rupees, given out as loans by banks, is under threat...and might never come back!
And yet, nobody bats an eyelid.
Yet, nobody is speaking about the BIG MESS that's there in public sector banks.
Now,
Coming to other part, what happens if these bank collapses or Liquidates.. How Much Money you can get … I will answer this Real Quick – Just 1 Lac or Lower if you have lower balance with Bank. Just 1 Lac even if you have 10 Lacs, 20 Lacs or Even 50 Lacs with the bank. When we are reducing the Cash transaction limits to Rs 2 Lacs it is very important to increase this insurance limit of 1 Lac also from the RBI / Government.
Details are as under:-
Do you know about Deposit Insurance And Credit Guarantee Corporation (DIGC)?
It's an entity created under the Reserve Bank of India that covers all commercial and cooperative banks in India.
Its job is to provide Insurance for YOUR Deposits in these banks.
So, if any bank goes bust tomorrow...DIGC will repay you.
Now I know that we haven't seen any bank go bust in recent past...
However, I do believe that this is one information that should be known to everyone who has even a single rupee saved in the bank.
Further, As per FAQ’s Hosted by DIGC there is a Interesting Read …
1. Which banks are insured by the DICGC ?
Commercial Banks : All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC.
Cooperative Banks : All State, Central and Primary cooperative banks, also called urban cooperative banks, functioning in States / Union Territories which have amended the local Cooperative Societies Act empowering the Reserve Bank of India (RBI) to order the Registrar of Cooperative Societies of the State / Union Territory to wind up a cooperative bank or to supersede its committee of management and requiring the Registrar not to take any action regarding winding up, amalgamation or reconstruction of a co-operative bank without prior sanction in writing from the RBI are covered under the Deposit Insurance Scheme. At present all co-operative banks are covered by the DICGC.
Primary cooperative societies are not insured by the DICGC.
2. What does the DICGC insure?
ü  The DICGC insures all deposits such as savings, fixed, current, recurring, etc. deposits except the fullowing types of deposits
ü  Deposits of foreign Governments;
ü  Deposits of Central/State Governments;
ü  Inter-bank deposits;
ü  Deposits of the State Land Development Banks with the State co-operative bank;
ü  Any amount due on account of and deposit received outside India
ü  Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India
3. What is the maximum deposit amount insured by the DICGC?
Each depositor in a bank is insured upto a maximum of  1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank's licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
14. Does the the DICGC directly deal with the depositors of failed banks?
No. In the event of a bank's liquidation, the liquidator prepares depositor wise claim list and sends it to the DICGC for scrutiny and payment. The DICGC pays the money to the liquidator who is liable to pay to the depositors. In the case of amalgamation / merger of banks, the amount due to each depositor is paid to the transferee bank.
Before Parting…
It is High Time We look into DICGC Limits to be raised to the extent of Deposit amount so that Digital Payments can be better evolved. Otherwise why would a Commoner bear losses against NPA’s debited to Super Rich People having Luxurious Lifestyles at the behest of People’s Money.
Constructive Feedback Always Welcome.
Regards,
CA Ankit Gulgulia (Jain)


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