One More Bank Fail: RBI freezes this Bank in Maharashtra, Customers can’t withdraw money

The Reserve Bank of India (RBI) has issued a directive to The Shirpur Merchants’ Co-operative Bank Ltd., Shirpur, under the powers granted to it by the Banking Regulation Act, 1949. From April 8, 2024, the bank is not allowed to grant or renew any loans and advances, make any investments, incur any liabilities, borrow funds, accept fresh deposits, disburse any payments, enter into any compromises or arrangements, or sell/transfer assets without prior approval in writing from the RBI. Bank was founded in the year 1946 by Shri Maganlal Shivlal Wani.
Considering the bank’s current liquidity position, depositors are not allowed to withdraw any amount from their accounts. However, they can set off their loans against their deposits, subject to the conditions stated in the RBI directive. Depositors are eligible to receive deposit insurance claims up to ₹5,00,000/- (Rupees five lakh only) from the Deposit Insurance and Credit Guarantee Corporation, as per the DICGC Act (amendment) 2021. Depositors can contact their bank officials for more information or visit the DICGC website at www.dicgc.org.in. This has caused panic among thousands of depositors who are unable to access their savings.

Similar restrictions on other banks
This is not the first time the RBI has imposed such restrictions on banks. In the past, the regulator imposed similar curbs on withdrawals in PMC Bank and YES Bank.
Rights of customers when a bank fails or is under moratorium
When a bank fails or is put under a moratorium, customers have certain rights. According to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, each depositor in a failed bank is insured for up to Rs 5 lakh, which includes the principal and interest amount in their accounts. This insurance cover applies to all types of deposits, such as savings accounts, fixed deposits, and current accounts.
Deposit insurance for customers of Shirpur Merchants’ Co-operative Bank
For customers of Shirpur Merchants’ Co-operative Bank, the RBI has stated that eligible depositors will be entitled to receive a deposit insurance claim amount of up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation. This claim can be made under the provisions of Section 18A of the DICGC Act (amendment) 2021, upon submission of willingness by the concerned depositors.
Timeline for customers to receive their money back
In the past, depositors had to wait for months to access their accounts in failed banks or banks under moratorium. However, the Deposit Insurance and Credit Guarantee Corporation Act was amended in 2021 to provide relief to customers of such banks. Now, customers of failed or stressed banks placed under moratorium will receive their deposits (up to Rs 5 lakh) back within 90 days of the start of the moratorium. This 90-day period is divided into two periods of 45 days each, with the stressed bank required to provide information on the number of claimants and claim amount within the first 45 days, and the DICGC mandated to process the claim and make payments within the next 45 days.
Coverage for joint accounts and accounts at different branches
According to the RBI, both single and joint accounts will be separately covered under the DICGC scheme. For example, if a customer has a savings account solely operated by them and another account jointly operated with their spouse in the same bank, both accounts will be separately insured up to Rs 5 lakh each.
Limitations of deposit insurance
It’s important to note that the DICGC covers all types of deposits except for certain categories, such as deposits of foreign governments, central/state governments, inter-bank deposits, and deposits received outside India. Additionally, if the total deposits held by an individual in a single bank exceed Rs 5 lakh, they will only be able to claim up to Rs 5 lakh, inclusive of the principal and interest amount, in the event of the bank’s bankruptcy.
Currently, the DICGC’s insurance cover applies to all accounts of a depositor, even if they are held in different branches of the same bank. However, the maximum coverage remains at Rs 5 lakh.