Rs5 Lakh Deposit Insurance: PMC Bank Customers Need to Wait For Some More Time
Moneylife Digital Team 23 September 2021
Updated on 24 September 2021 at 4pm to include clarification from DICGC
The Union government has announced that the Deposit Insurance & Credit Guarantee Corporation (DICGC) would be paying a maximum of Rs5 lakh to depositors of 21 banks, including Punjab and Maharashtra Cooperative (PMC) Bank and Gururaghvendra Sahakara Bank Niyamitha, within 90 days or by 29 December 2021. However, unlike all other cooperative banks that have gone into liquidation, PMC Bank is actually in the process of a revival and has many large depositors, including employees of the Reserve Bank of India (RBI). 
Many customers, who have well over Rs5 lakh deposited with PMC Bank and Gururaghvendra Sahakara Bank, are confused about the announcement.
Does it mean that they can claim Rs5 lakh now and will still be entitled to the rest of their money if the PMC Bank achieves a turnaround under Centrum Financial Services Ltd (CFSL) along with Resilient Innovation Pvt Ltd? Some large depositors believe that accepting Rs5 lakh from the deposit insurance corporation would be considered a 'full and final settlement'.
The finance ministry and RBI are silent on the matter, although they ought to have offered a complete explanation about why they have made an exception for PMC Bank, especially after granting in-principle approval to an acquirer. This is only the second time in the history of RBI that deposit insurance is being paid without liquidating the cooperative banks – the previous time was also under the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government, which made an exception for Madhavpura Mercantile Cooperative Bank of Gujarat, which went bust due to its involvement with scamster Ketan Parekh in 2001. 
While tabling the amendment in Lok Sabha, finance minister Nirmala Sitharaman had said, “(The) DICGC Bill is effective from now, but PMC Bank, and Guru Raghavendra Bank that are already under stress but which are not under moratorium, which may have administrator sitting and sorting the business out, even their depositors will benefit and get Rs5 lakh within 90 days.”
If the bank goes into liquidation, DICGC is liable to pay the liquidator the claim amount of each depositor up to Rs5 lakh within two months. However, suppose the bank is reconstructed or amalgamated or merged with another bank. In that case, DICGC pays the difference between the total amount of deposit or the limit of insurance cover in force at the time, whichever is less and the amount received by him under the reconstruction or amalgamation scheme. It is done within two months from the date of receipt of the claim list from the transferee bank or chief executive officer (CEO) of the insured or transferee bank, as the case may be.
Bankers, as wells former senior officials from the Reserve Bank of India (RBI), opined that depositors should accept the offer from DICGC and submit the form for willingness to the insured bank. 
G Jaganmohan Rao, former managing director (MD) of Bank Note Paper Mill India Pvt Ltd, who worked as principal chief general manager (PCGM) in the department of banking supervision of RBI, says, “We do not know the terms and conditions of the deal between PMC Bank and Centrum Financial Services. If the bank has assets and the administrator thinks they have surplus money, they may prioritise depositors for emergency or medical expenses. However, only the RBI can clarify on this.”
All those involved in the PMC Bank resolution are not disclosing anything. Moneylife attempted to contact the CEO of PMC Bank and the RBI, but we have no clarity. A senior official from Centrum Financial replied to our message saying, “We have no comment to offer here.”
According to Kaza Sudhakar, former MD of Bharatiya Reserve Bank Note Mudran Pvt Ltd and former PCGM in RBI, all deposits under one name will receive up to Rs5 lakh from DICGC. “Under the DICGC rules, depositors who have deposits above this amount will be treated as unsecured creditors. However, since PMC Bank is not liquidated, depositors may get paid more money if and when RBI issues a notification.”
On 24 September 2019, RBI had imposed strict restrictions on the Mumbai-based Bank. PMC Bank was also barred from carrying out most of its routine business transactions, and depositors were restricted to withdraw only Rs1,000 from their accounts at that time. On 5 November 2019, the limit was increased to Rs50,000. 
In June last year, this limit was raised to Rs1 lakh, with which the central bank had said that more than 84% of the depositors of PMC Bank would be able to withdraw their entire account balance.
Former banker Abhay Datar, who is also a counsellor at Moneylife Foundation and former managing committee member of Mumbai Grahak Panchayat, says, “Without waiting further, depositors of PMC Bank can at least receive maximum Rs5 lakh, including interest, from DICGC against their all deposits. This does not mean that depositors who have more than Rs5 lakh will not receive their money. They may receive, but it depends upon the deal between PMC Bank and Centrum Financial. As per the terms and conditions in this deal, depositors may receive their balance amount.”
Strangely, RBI has not provided any clarity on the deposits because several investors with large deposits are in dire need of money after the COVID pandemic, and they need to be told in no uncertain terms whether accepting the insurance money will compromise the rest of their money. 
Meanwhile, depositors need to know that even if they have multiple accounts with these banks, they will be aggregated and insurance cover is available up to Rs5 lakh in maximum.
Suppose more than one deposit accounts, like savings, current, recurring or fixed deposits (FDs), are jointly held by individuals in one or more branches of a bank in which their names appear in the same order. In that case, balances held in all these accounts are aggregated, and DICGC would pay a maximum of Rs5 lakh.
However, suppose individuals open more than one joint account in which their names are not in the same order. In that case, deposits held in these joint accounts are held in different capacities and rights. For such deposits, insurance cover will be available separately up to Rs5 lakh to every such joint account where the names appearing in different order or names are different. 
Further, the bank has the right to deduct its dues from the amount of deposits on the cut-off date. The deposit insurance is available after netting such dues.
In a clarification, the DICGC stated, "In terms of section 18 A (7) (a) of the Act, where the Reserve Bank finds it expedient in the interest of finalising a scheme of amalgamation or compromise or arrangement or reconstruction in respect of insured banks, the date on which the Corporation shall become liable to pay depositors of such insured banks may be extended by a period not exceeding ninety days. It is noted that in the case of the PMC Bank there may be a need to invoke the provisions of section 18 A (7) (a) of the Act. The revised date for submission of claims and the procedure to be followed in respect of payment of deposits in this bank will be communicated separately."
This means the depositors of PMC Bank will have to wait for some more time to get their money back from the lender.
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