The Depositor Who Expected Rs 20 Lakh From Deposit Insurance
A customer of a district co-operative bank holds the following deposits when the Reserve Bank of India places the bank under a moratorium and it is subsequently ordered to be liquidated:
(a) a savings account of Rs 3.2 lakh in his own name at the main branch; (b) a fixed deposit of Rs 2.5 lakh in his own name at a second branch of the same bank; (c) a joint fixed deposit of Rs 9 lakh held with his spouse, he being the first holder; (d) Rs 4 lakh held by him as trustee for his minor daughter.
He has also nominated his son for the savings account. He tells the liquidator that he expects Rs 5 lakh against each of the four deposits - Rs 20 lakh in all - because the branches are different and because "insurance is paid per deposit". He further believes that the nominee will receive the savings account money to the exclusion of the legal heirs, and that his outstanding gold loan of Rs 1.5 lakh from the same bank will simply be written off along with the bank.
1. Compute the deposit insurance payable to this customer. Show how each deposit is treated and why.
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Governing principle: deposit insurance is a cover of up to Rs 5 lakh per depositor per bank, for all deposits held in the same right and same capacity, principal plus interest. Branch location and the number of receipts are irrelevant.
Grouping by right and capacity:
| Capacity | Deposits | Total | Insured |
|---|---|---|---|
| Own name (single) | (a) 3.2 + (b) 2.5 | Rs 5.7 lakh | Rs 5.0 lakh (capped) |
| Joint with spouse | (c) 9.0 | Rs 9.0 lakh | Rs 5.0 lakh (capped) |
| Trustee for minor daughter | (d) 4.0 | Rs 4.0 lakh | Rs 4.0 lakh (within cap) |
Payout = 5.0 + 5.0 + 4.0 = Rs 14 lakh.
The two single-name deposits are clubbed because they are held by the same person in the same capacity, even though they sit at different branches; Rs 0.7 lakh of that clubbing is uninsured. The joint deposit is a different capacity, so it is not merged with his single-name deposits. The trustee deposit is also a separate capacity - the beneficiary, not the trustee, is treated as the depositor, so it is insured separately and, being under Rs 5 lakh, is fully covered.
2. Could the two joint holders each claim Rs 5 lakh, taking the joint deposit's cover to Rs 10 lakh? Answer with reasoning.
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No. The unit of insurance is not the number of names on the receipt but the deposit held in a given right and capacity. A joint deposit is one deposit held jointly; it is insured up to Rs 5 lakh for that account as a whole. Allowing each holder a separate Rs 5 lakh on the same money would double-count a single liability of the bank.
What the "separate capacity" rule does achieve is that the joint deposit is not clubbed with either holder's individual deposits. So the customer's single-name deposits (Rs 5.7 lakh, capped at Rs 5 lakh) and the joint deposit (Rs 9 lakh, capped at Rs 5 lakh) are each covered to their own ceiling - but each ceiling is Rs 5 lakh, not Rs 5 lakh per person.
Practical implication for the branch: when advising customers on the Rs 5 lakh cover, the useful lever is different capacity - joint accounts, accounts as guardian or trustee, accounts of a proprietary concern versus personal accounts - and not merely opening more deposits or more branches in the same name.
3. Assess the customer's two remaining beliefs - the nominee's entitlement and the fate of the gold loan.
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On the nominee. A nomination does not create ownership. The nominee receives the deposit amount from the bank, but holds it as a trustee for the legal heirs under the law of succession applicable to the depositor; the nominee is a convenient discharge for the bank, not a substitute for a will. The son therefore collects the insured amount for the savings account but must distribute it among the legal heirs, and if he is himself a legal heir he takes only his lawful share. If the customer wants the son to receive the money beneficially, that requires a will, not a nomination.
On the gold loan. Deposit insurance protects deposits; it does not extinguish the borrower's liability. The customer continues to owe Rs 1.5 lakh plus accrued interest, and the liquidator will pursue it - typically by adjusting the dues against the insured deposit before releasing the balance, so the effective cash received may be lower than Rs 14 lakh.
Summary for the liquidator's reply: the claim of Rs 20 lakh is wrong on every count - wrong unit (per deposit), wrong base (per branch), and wrong treatment of joint, trust and nominee holdings.