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With reports of bank failure hogging the headlines, a depositor needs to know about the safety of her hard-earned money

Titbits

DICGC is a wholly owned subsidiary of RBI

The ₹1 lakh insurance limit is applicable across all accounts held by an individual depositor

Check the DICGC website for a list of insured banks

With the Reserve Bank of India (RBI) cracking down on Punjab and Maharashtra Co-operative Bank (PMC Bank) last week and capping withdrawals by depositors at ₹25,000(₹1,000 initially, increased to ₹10,000 later), were you wondering what happens to depositors if banks fail in India? Here’s a refresher on how deposit insurance works.

What happens to depositors’ money when a bank fails?

When a bank is liquidated, depositors are entitled to receive an insurance amount of ₹1 lakh per individual from the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). The DICGC is a wholly owned subsidiary of the RBI. The ₹1 lakh insurance limit includes both principal and interest dues across your savings bank accounts, current accounts, fixed deposits and recurring deposits held with the bank.

Are co-operative banks covered by DICGC?

Yes, deposit insurance covers all commercial banks and foreign banks operating in India, State, Central and Urban Co-operative Banks, local area banks and regional rural banks. When a bank fails to pay up the premium for deposit insurance, DICGC sometimes de-registers the bank and its insurance cover ceases. You can check the DICGC website (www.dicgc.org.in) for a list of insured banks under different categories.

What if I have many accounts in the same bank?

The ₹1 lakh insurance limit is applicable across all the accounts held by an individual depositor.

So, if you have multiple bank accounts with the same bank, you will receive only ₹1 lakh as insurance payout against all the accounts held in your name. Suppose you have ₹50,000 in your savings bank account, ₹1 lakh in fixed deposits and ₹30,000 in recurring deposits (including interest) with the same bank and the bank goes bust, you will receive only ₹1 lakh and will lose ₹80,000.

Do note that, due to this limit, by end March 2019, only ₹33.7 lakh crore of the ₹120 lakh crore deposit balances with banks were insured. Banks are also entitled to set off any pending dues against this payout.

How does this work for business and joint accounts?

To decide on the eligibility, all accounts held ‘in the same capacity with the same rights are added up.

Therefore, if you hold several accounts in a failed bank in your individual name, you will be eligible for a combined insurance payout of only ₹1 lakh. But if you hold a personal account in your name and another account as a partner in a partnership firm or as the guardian of a minor (a different capacity), these will be treated as different accounts and will receive separate insurance payouts of ₹1 lakh each.

In joint accounts, all joint accounts where the account holders are mentioned in the same order are treated as one. But joint accounts where the holders are in different order (different rights) will receive separate payouts.

How do I maximise my deposit insurance cover?

By diversifying your deposits across multiple banks and holding accounts in different capacities — as an individual, joint account holder or guardian of a minor.

Who pays for this insurance?

Every insured bank pays premium amounting to 0.001% of its deposits to DICGC every year.

Have many banks gone bust in India?

While scheduled commercial banks have rarely gone bust (RBI usually steps in to rescue/merge them before they fail), failures have been a more common occurrence with co-operative banks.

From its inception until March 2019, DICGC has settled depositor claims worth ₹295.9 crore with respect to 27 commercial banks and ₹4,822 crore with respect to 351 co-operative banks which have folded up.

Does the DICGC have enough money to pay so many depositors?

Yes. In FY19, DICGC received ₹12,040 crore by way of premiums, paid out ₹37 crore as claims with respect to 15 co-operative banks and had a surplus of ₹87,995 crore in its deposit insurance fund by the end of the year.

Apart from premiums, DICGC also makes money from investments and proceeds recovered from liquidated banks.

What is the procedure for depositors to claim the money from a failed bank?

The DICGC does not deal directly with depositors. The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.

Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge. The DICGC is supposed to pay these dues within two months of receiving this list.

In FY19, it took an average 1,425 days for the DICGC to receive and settle the first claims on a de-registered bank.

Fed meet, trade war, Saudi attack influence prices

After touching a six-year high in the first week of September, prices of precious metals turned soft in the subsequent weeks. The outcome of the U.S. Federal Reserve meeting, news relating to the U.S.-China trade war and drone attack on Saudi oil facilities were key events that influenced the precious metal price trend last month.

While the U.S. Federal Reserve announced an interest rate cut, the uncertainty over the scope for further rate cuts affected sentiment towards precious metals. At the end of September 2019, Comex gold closed 3.7% lower at $1,472.9 an ounce while Comex silver fell 6.5% to settle at $17 an ounce.

In the domestic market, the price of gold futures at the MCX declined by 4.7% in September to close at ₹37,323 per 10-grams. MCX silver futures, too, was weak and closed 5.6% lower to ₹44,126 per kilogram.

The short-term outlook for Comex gold and silver is positive. A breakout above the immediate resistance in the $1,543-1,550 zone would confirm the positive outlook. This would also strengthen the case for Comex gold to move to the short-term target in the $1,580-1,590 zone.

The positive outlook would be under threat if the price slips below the support at $1,450-1,460. A close below $1,450 would suggest that gold is in a short-term downtrend and the price could then slide to $1,415-$1,420. The short-term outlook for silver is also positive. A move past the resistance level at $18.80-19 would be a sign of strength and could trigger a further rise in silver.

However, a fall below the support at $16.5-16.6 would indicate that the short-term trend is bearish in silver and could push the price lower to $15.5-15.6. Until the price of silver holds above $16.5, there would be a case for a rise towards $19.5-20.

Gold and silver prices at MCX mirrored the trend in the international market. The outlook for MCX gold and silver appears positive. The gold futures price at MCX is likely to head to the immediate target of ₹40,600-41,000 per 10-grams. The positive view would warrant a reassessment if the price falls below the support zone at ₹36,600-37,000 per 10-grams. Below ₹36,600, MCX gold could slide to ₹34,500-34,750 zone.

MCX silver could move higher towards the immediate target of ₹48,600-49,500 zone. There is a strong support for silver at ₹43,600-44,000 zone. A close below ₹43,600 would invalidate the positive outlook and could push MCX silver price to lower levels of ₹40,000-40,200 per kilogram.

To summarise, precious metals have been in a short-term downtrend and the recent price action indicates resumption of the medium-term uptrend. As long as the support zones are not violated, expect precious metals to inch higher.

(The author is a Chennai-based analyst/trader. This is not meant to be trading or investment advice)

CVDs will be the largest cause of death and disability in India by 2020: WHO

Taking heart: About 80% of premature deaths from CVDs can be avoided if the risk factors are controlledGetty Images/iStockChinnapong

It was just two months ago when Mridul, a marketing professional, from Kolkata, opted to undergo a casual cardiac-screening test under a health check-up camp organised by his employer.

A non-smoker and an avid runner, Mridul recalls he wasn't worried at all while taking the different tests. However, the results were shocking. Through a number of further tests, he got to know that he had mitral leaking valve disease with blood leaking into the wrong parts of his heart.

Soon, he underwent a keyhole surgery to repair the valve which cost him ₹3 lakh. Unfortunately, he was not covered under an individual health cover policy and his employer-provided health policy only covered expenses up to ₹1 lakh. To pay for the hospital expenses, he had to break his savings. Had he taken an individual health insurance policy, his savings would have been intact.

As per several reports, cardiovascular disease (CVD) is a leading cause of mortality worldwide as they contribute to over 17.5 million deaths worldwide every year.

While the deaths due to CVDs have declined in the U.S., in India it has increased by over 34% in the last two decades. CVDs will be the largest cause of death and disability in India by 2020 as per a World Health Organisation report. This is because of the genetic make-up of Indians and the consistent lifestyle change they have undergone over the last few decades.

Experts believe that at least 80% of premature deaths from CVDs could be avoided if the main risk factors — tobacco, unhealthy diet and physical inactivity — are controlled.

Massive expenses

Working towards a healthy heart also means keeping yourself insured against the massive expenses of unexpected onset of CVDs. Treatment of CVDs is costly in India.

An open-heart surgery costs ₹5 lakh to ₹7 lakh and valve surgeries between ₹3 lakh and ₹6 lakh. To cover these expenses, one must invest in a comprehensive health insurance policy that provides adequate coverage. Considering the rising incidence of cardiac ailments in India, insurers have come up with specifically-designed plans.

The plans provide financial protection in case you are diagnosed with a cardiac condition or are undergoing a procedure as covered under the policy.

A fixed benefit cardiac plan allows you to avail the best medical treatment by helping meet your medical needs and letting you use your savings for a rainy day.

They provide comprehensive cover for an extensive list of cardiac conditions and procedures and fixed lump sum payout irrespective of actual expenses incurred for diagnosis/procedure.

Multiple claims of same or different conditions/procedures can be covered subject to the exhaustion of applicable sum insured. Moreover, consumers can even choose hospitalisation benefit to get lump sum payout in case he/she is hospitalised due to any of the covered conditions.

Plans on offer

Plans that offer coverage to people already suffering from heart-related ailments include Star Health Insurance’s Cardiac Care which is available at a premium of ₹19,010. One may even choose to invest in Religare’s Care Heart available at a premium of ₹9,208 while Aditya Birla’s Enhance plan can be bought for ₹26,570.

For those not suffering from heart-related ailments but wish to cover themselves against CVD can invest in plans like Max Bupa’s Health Companion at a premium of ₹8,752, Apollo’s Optima Restore at a premium of ₹8,431 or Star’s Medi Classic that costs ₹6,431.

All the premiums are for a 35-year-old male residing in a metro city and the sum insured for each of these plans is ₹5 lakh.

(The author is Business Head, Health Insurance, policybazaar.com)

Q. My husband is working in an IT firm and his current CTC is ₹13 lakh per annum. After our monthly expenditure of about ₹50,000, we can save some good amount. Please suggest an investment plan to buy a home.

Shalini Rathore

A. We do not know when you wish to buy a home, how much you can save and what the budget for your home is. Please get these estimates so that you can save in a more focussed manner and are able to choose the right instruments.

If your home-buying plan is within the next three years, then you should stick to simple products such as recurring deposits and use some low-risk liquid funds and low duration debt funds to add any periodic lump sums you may accumulate in your savings account. If your goal is over five years away, then consider investing at least 50% in multi-cap equity mutual funds using monthly SIPs and the remaining in a combination of recurring deposit and short-term high-quality debt funds.

Q. I am 40 years old. I have a daughter studying in Class One. I purchased an SBI Smart Champ insurance plan for my daughter four years ago and pay about ₹1,000 as monthly premium. This is for her future education and marriage. Can you please suggest other investments which will return more and are safe considering my age and retirement.

Vijay Devagirikar

A. The policy you have taken is a non-linked policy and may not see high returns. Based on your premium, I am assuming the sum assured will not be more than ₹20-25 lakh. You can consider Sukanya Samriddhi Yojana offered by the government, exclusively for a girl child, with a fixed interest and guaranteed return.

But other than that, given that this policy is not one that will yield optimal returns, you should consider some market-linked quality products like mutual funds in order to build enough corpus for your daughter and make sure you save for retirement.

Seek the help of a fee-based adviser to help you make an estimate of how much you need to save for your daughter and for your own retirement. This way, you will at least be on track in terms of knowing how much to save or even alter your expectations of what you can provide.

Q. My wife is 57 years old. She has ₹50 lakh in NHAI bonds at an interest rate of 5.75%. The bonds are due for redemption on December 31, 2019.I need your advice as to how the amount can be gainfully invested on maturity. I have no pressing requirement for this amount. My wife would like to receive some money for her monthly expenses and there is no pressing requirement otherwise.

A.N. Kunjunny

A. Options like Post Office Senior Citizens’ Scheme and LIC’s Pradhan Mantri Vaya Vandana Yojana would work well to get good returns as well as regular income.

However, they are available from the age of 60. Until such time, you can consider investing in FDs and quality corporate deposits and post office schemes to derive interest income for your wife’s monthly needs.

You can consider deploying the remaining in liquid and ultra-short debt funds with very low risk and about 20% in multi-cap equity funds using the systematic investment plan or systematic transfer plan to deploy it slowly into the market. Have a minimum three-year horizon for the debt funds and allow the equity funds to grow for the long term.

(The author is Co-Founder, Redwood Research)

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