The ₹5-lakh cap and the gold loan: sizing a DICGC payout after a moratorium
Sunrise Nagari Sahakari Bank, a district-level cooperative bank with 41 branches, was placed under a 12-month moratorium by the Reserve Bank of India on 3 February. Withdrawals were capped at ₹5,000 per depositor. Among the depositors:
- Meera Joshi holds savings of ₹2.4 lakh and a fixed deposit of ₹7.8 lakh in her own name at the main branch. She also holds a joint savings account with her son Aniket containing ₹6 lakh.
- Aniket holds a ₹3.2 lakh fixed deposit in his own name at a different branch of the same bank.
- Meera has an outstanding gold loan of ₹1.9 lakh from the same bank.
The bank's board argues that since deposits are "insured up to ₹5 lakh", Meera will receive ₹5 lakh and the gold loan can be written off. A depositor group claims that cover applies separately to each branch and each account. Separately, the bank's gross NPA is 14%, and its chairman wants to sanction a fresh ₹2 crore loan to a sugar mill while the moratorium is in force.
1. Compute the deposit-insurance payouts receivable by Meera and Aniket. State the rule you apply for the joint account and for the different branches, and explain how the gold loan interacts with Meera's claim.
Read the worked answer
Rule applied: DICGC cover is ₹5 lakh per depositor per bank, in the same right and capacity. Branch is irrelevant; a separate bank would give separate cover. Different accounts of the same person in the same bank are aggregated. In a joint account, each joint holder is treated as a separate depositor for his or her share (presumed equal unless stated otherwise).
Meera
- Own-name deposits: 2.4 + 7.8 = ₹10.2 lakh
- Share in joint account: 6/2 = ₹3.0 lakh (the son's ₹3 lakh is counted against his limit, not hers)
- Aggregate: ₹13.2 lakh → insured payout capped at ₹5 lakh
Aniket
- Own-name FD: ₹3.2 lakh
- Joint-account share: ₹3.0 lakh
- Aggregate: ₹6.2 lakh → insured payout capped at ₹5 lakh
Combined family payout = ₹10 lakh, not ₹5 lakh (the board's implicit view) and not ₹5 lakh per branch (the group's claim).
Gold loan: deposit insurance protects the deposit, it does not extinguish the borrower's liability. The bank (or the liquidator acting for it) may exercise its right of set-off and adjust Meera's dues of ₹1.9 lakh against her claim, so her net receipt is likely to be ₹5 lakh minus the adjusted dues. She does not get ₹5 lakh and a free gold loan.
2. Evaluate the board's argument, the depositor group's claim, and the proposal to lend ₹2 crore to the sugar mill.
Read the worked answer
Board's argument - wrong on two counts. (i) ₹5 lakh is an insurance ceiling, not a settlement of the depositor's entire legal claim; the balance above ₹5 lakh remains a claim on the bank in liquidation and may be recovered from asset sale. (ii) Insurance never cancels a borrower's obligation; set-off runs the other way, reducing what the depositor receives.
Depositor group - wrong. Cover is per depositor per bank, not per branch or per account. Splitting deposits across branches of the same bank creates no extra cover; splitting them across two different banks would.
Sugar mill loan - cannot be sanctioned as proposed. Under Section 45 of the Banking Regulation Act, 1949, during moratorium the bank cannot make payments or dispose of property except as permitted by the RBI order; the board stands superseded and an administrator runs the bank. Fresh credit needs RBI clearance and would be indefensible when the bank is already at 14% GNPA with a liquidity cap on withdrawals - deploying scarce cash into a new large exposure ahead of depositors' claims is a conflict with the depositor-interest test the RBI applies. The chairman's plan should be rejected and the decision recorded.