Every currency note of all denominations (except Re 1) issued in India has two statements printed on it :
“I promise to pay the bearer the sum of Rupees …. ” under the signature of the incumbent Governor of the Reserve Bank of India ; and
“Guaranteed by the Central Government“.
The Government of India wants the Indian Economy to move towards a cashless economy but simply fails to provide the same promises and guarantees on a banked economy, which it provides on Cash Currency.
No Savings Bank Pass Book or a Fixed Deposit Receipt contains any legally enforceable promise of payment to depositor by the Reserve Bank of India or features a like guarantee by the Central Government.
Have you ever wondered how much of your deposit is safe (legally enforceable), in case Banks (public, private, co-operative) face default – liquidation/cancellation of bank’s license?
Each depositor in a bank is insured upto a maximum of 1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank’s license. (Source: DICGC Website). (The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of the Reserve Bank of India.) The limit was set on 1 May 1993 and has not been revised / enhanced since then.
Banks have failed in the past, with depositors losing their hard-earned savings in many cases and without adoption of rigorous governance practices and safeguards of the highest standards, are likely to fail in the future also.
Refresh your memory with the case of Global Trust Bank which was merged with Oriental Bank of Commerce, a little known Surat Mahila Nagrik Sahakari Bank (a co-operative Bank in Surat, Gujarat) or a public sector bank United Bank of India which had been extended lifeline by Government / RBI to continue accepting deposits but stop further lending.
Public and Private sector banks in India are already riddled with the mess of Non-performing assets (terminology for bad debts/loans) and face a severe capital crunch to meet the BASEL norms.
The Government of India is set to propose a framework for bankruptcy resolution in case of failing banks and financial sector entities, separate from the The Insolvency And Bankruptcy Code, 2016. How much depositor interest will it protect is a matter hanging in time.
At present, RBI has classified SBI and ICICI Bank as Domestic Systematically Important Bank (D-SIBs), Indian version of the United State’s Too Big to Fail.