What happens to your deposits if a bank fails: HDFC Bank warns customers with this message

The warning message says that the banks are liable to pay customers only up to Rs 1 lakh in case the bank undergoes liquidation. (Image: Reuters)

Depositors are worried. They are concerned about keeping their hard-earned money in a bank after the PMC Bank scam broke out, and soon after India’s largest bank HDFC Bank started to stamping a warning message on passbooks. The warning message says that the banks are liable to pay customers only up to Rs 1 lakh in case the bank undergoes liquidation on the back of bankruptcy or large scale fraud. However, the liquidation of the bank is a rare phenomenon, especially in countries such as India.

Recently, HDFC Bank has started to stamp its passbook, which says that in the case of liquidation, the depositor will get a maximum of Rs 1 lakh only. This amount is irrespective of the depositors’ total savings, and also includes the accrued interest on the principal amount. The deposits in the commercial and cooperative banks are insured by ‘Deposit Insurance and Credit Guarantee Corporation,’ for which the banks pay the premium.

“If a bank is liquidated, the depositors will get only Rs 1 lakh but no bank in India has ever been liquidated, except a few cooperative banks like Madhavpura Mercantile Cooperative Bank, which was hit by Ketan Parekh scam,” Sameer Narang, Chief Economist, Bank of Baroda, told Financial Express Online.

However, the insurance of Rs 1 lakh should be raised further as it was fixed a long time back and it is logical to raise its cap in the new FRDI bill, Sameer Narang added. Immediately after Nirav Modi scam in Punjab National Bank was unearthed, the enforcement agencies discovered many small and big scams in other banks as well. This depleted the confidence of depositors in keeping their hard-earned money in the bank.

In a reply to one of its customers, HDFC Bank clarified that it has only followed RBI guidelines.

Hi Deepak, An IMPORTANT CLARIFICATION w.r.t. a passbook image circulating on WhatsApp and social https://t.co/34daCII09C: https://t.co/xYXvBDojbZ -Nadia pic.twitter.com/as1VWc8yA4

— HDFC Bank (@HDFC_Bank) October 18, 2019

An option that was considered safe for many decades suddenly started to lose its credibility. The recent PMC bank incident has hit the last nail in the coffin after RBI put a cap on cash withdrawal. Many customers who found it safe to keep their cash in the PMC Bank, struggled to get the money out of their own account.

Meanwhile, the growth rate of deposits in the scheduled commercial banks rose 2.9 per cent in the current financial year so far, which rose 3.2 per cent in the previous year, according to the Reserve Bank of India.