One failed bank, four accounts, and a family theory about insurance
Ramesh holds several deposits in the same commercial bank, which fails and is ordered to be liquidated. In his own name he has ₹3,00,000 in a savings account at the Kothrud branch and ₹4,00,000 in a fixed deposit at the Deccan branch. He and his wife, Sunita, hold a joint fixed deposit of ₹2,00,000 at a third branch. Sunita separately holds a fixed deposit of ₹6,00,000 in the same bank. Ramesh is also a director of a private limited company that keeps ₹8,00,000 in its current account with that same bank. The family believes each account is separately protected and that moving deposits between branches increases the cover. The liquidator asks you to compute what the deposit insurer will actually pay, and to whom.
1. Compute what Ramesh receives in his personal capacity, showing what is aggregated and why.
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Deposit insurance in India runs at a ceiling of ₹5,00,000 per depositor per bank, and the limit applies to the depositor's total claim on that bank - not per account and not per branch.
Ramesh's personal exposure:
- Savings, Kothrud: ₹3,00,000
- Fixed deposit, Deccan: ₹4,00,000
- His share of the joint deposit (two holders, so half): ₹1,00,000
- Total: ₹8,00,000
That exceeds the ceiling, so he is paid ₹5,00,000 and ranks as an ordinary creditor for the balance in the liquidation.
The two branches are irrelevant: both are the same insured bank, so the two accounts are one claim. The joint deposit is reckoned by each holder's share, but here the point is moot - he was already above ₹5,00,000 before it was counted, so including or excluding it changes nothing.
2. What does the household (Ramesh plus Sunita) receive in total from the bank, and what does that show about the family's assumption?
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Sunita's own claim on the bank:
- Her fixed deposit: ₹6,00,000
- Her share of the joint deposit: ₹1,00,000
- Total: ₹7,00,000 → capped at ₹5,00,000
Household total from the bank: ₹5,00,000 + ₹5,00,000 = ₹10,00,000.
Total deposits placed by the two of them with this bank: 3 + 4 + 2 + 6 = ₹15,00,000. So ₹5,00,000 of family money is unprotected.
The family's assumption - that each account is separately protected - is exactly wrong. The joint account does not create a third cover: it is split into two halves, each half absorbed into the holder's own single ceiling. Four accounts produced two ceilings, not four. Splitting money across more branches of the same bank would have produced the same two ceilings.
3. State what the company receives, whether it affects Ramesh's personal claim, and evaluate the family's plan to shift deposits between branches to 'create' more cover.
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Company: a private limited company is a depositor separate from its directors. Its ₹8,00,000 current-account balance is insured in its own right up to the ceiling, so the company receives ₹5,00,000, with the balance claimable in liquidation. It does not consume any part of Ramesh's ₹5,00,000, and Ramesh's personal deposits do not consume any part of the company's - the two shields are stacked. What would blur them is using the company's account as a personal account or holding deposits in a sole proprietor's name, where the individual and the firm are not distinct depositors.
Branch-splitting: worthless. The ceiling is per depositor per bank; a depositor with ₹15,00,000 across ten branches of one bank still has one claim of ₹5,00,000. Cover increases only by placing deposits with different banks - or different insured institutions - and the family should also weigh the concentration risk they are actually trying to solve.