Deposit insured in India, if bank fails

- S. C. Ojha

The depositors are secured in India if a bank fails. In India norms of banking is very strict and monitoring system is in direct control of country’s central bank Reserve Bank Of India.

In the beginning in 1961 an act came into existence the Deposit Insurance Act, 1961 and made effective on January1, 1962.  Up to 1977 two organizations the DIC & CGCI were looking after the function of deposit insurance and credit monitoring. The present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence with merger of DIC & CGCI on July15, 1978.

Covered Banks

In 1968 co-operative banks have got protection under deposit insurance with some eligibility norms. Initially only commercial banks inclusive of State Bank Of India & its group and foreign banks operating in India were covered.

Presently all commercial banks, foreign banks working in India, local area banks, regional rural banks, all eligible urban co-operative banks( central, state & primary co-operative banks ) are covered under the Deposit Insurance Scheme.

The insurance coverage scheme is compulsory in India and no bank can withdraw from it.

Types of Deposit Covered

All types of bank deposit are covered under this scheme like savings, current account, fixed deposits, recurring deposits etc.

Deposit not covered

Any amount due on account of and deposit received outside India, any amount, which has been particularly exempted by DICGC with the prior approval of RBI are not covered under this scheme. Govt deposits Central or State, Foreign Govt deposits, inter-bank deposits, deposits of State Land Development Banks  with State Co-Operative Bank are also not covered.

Limit of Amount Covered

Each depositor is insured upto a maximum of Rs. 1, 00,000(Rs one lac) per bank. Insurance cover is available customer wise not scheme wise.  The deposit kept in different branches of same are aggregated and total cover provided will be a maximum of Rs. one lac. All funds held in the same capacity in the same bank will be clubbed together for the purpose of insurance cover.   Joint account will be treated as separate account and will get cover. Each joint account with different combination treated as different entity and get insurance benefit separately. All joint accounts with same person’s combination will be treated as one customer account and the combined total will be insured upto Rs, one lac.

De-registration of a bank & Liability of DICGC

If bank is prohibited from receiving deposit, or it’s licence is cancelled by RBI or it is wound up compulsorily or voluntarily or it is ceases to be a banking company or on amalgamation or merger or reconstruction where acceptance of deposit not permitted, the registration of an insured bank stands cancelled. In such situation liability of DICGC is limited to extent of deposits as on the date of cancellation.

In another situation DICGC cover is limited upto date of cancellation where a bank fails to deposit the premium amount for three consecutive periods.

Payment of Insurance Premium

Depositors have no liability to pay insurance premium. Deposit insurance premium is fully paid & born by the insured bank. Now DICGC increased the premium rate from 5 paise per Rs. 100 per annum to 10 paise per Rs.100 per annum since April 2005. The premium is payable half yearly in advance in April & October. The premium payment is compulsory to pay latest by 31st may & 31st October.

Payment of Insured amount

If a bank fails or goes into liquidation, the DICGC is liable to pay to each depositor up to Rs. one lac. The payment will be made through liquidator within two months from the date of receipt of claim from the liquidator.

In case of amalgamation or reconstruction or merger with another bank, the claim will be paid to concerned existing bank by the DICGC. The claim will be payable to transferee bank within two months from the date of claim list submission. In such case, the difference amount between the full amount of deposit or the limit of insurance, which ever is less and the amount received under amalgamation/reconstruction scheme will be paid.

The above deposit insurance scheme came into force keeping the view to protect the interest of small depositors of the country. Now feel free to enjoy opening your account in different banks and get your deposit secured more & more.

Historical data related to bank failure in India

At present upto march ’08 there are 2356 banks including public sector, private & co-operative banks in India are protected under scheme of DICGC. In previous three years no instance of failure of any major bank in India.

A number of co-operative banks have failed due to various reasons in previous years. From 01.04.06 to 30.09.08 there are 63 co-operative banks are failed and all qualified customers get payment from DICGC. In these failure banks Gujarat is on number one with 25 banks and Maharashtra is on 2nd position with 10 banks. The size of failure banks are a little bit and not in percent. It is magic of Indian economy and strategic control of the system that Indian banks are protected well.

More insurance cover expected

In USA in a temporary phenomenon all deposit accounts are insured up to at least $250,000 per depositor until December 31, 2009 at the place of regular insurance coverage $ 1,00,000 . Unlimited insurance coverage also provided for entire amount to all non-interest bearing transaction deposit account on temporary basis up to 31.12.09 for strengthen banking system and making confidence in depositors in USA.

Likewise USA, in India govt may think. In present context of global economic scenario for more protection of public deposit in the country, limit of insurance coverage is required to be increased to Rs. 2.5 lac from present Rs. 1 lac .

It will more beneficial for depositors in India if RBI can liberalize banks to get additional deposit insurance cover on higher premium for their depositors for attracting more deposits and strengthening the economy.

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As the use of the Internet continues to expand, more banks and thrifts are using the convenience and ease of the Web to offer products and services, as well as enhance communication with customers. According to the Federal Deposit Insurance Corporation (FDIC), the Internet offers the potential for safe, convenient ways to shop for financial services and conduct banking business – 24/7. However, to ensure safe banking, customers need to be educated in making good decisions that protect them from costly surprises or even scams.

Protecting Deposits

Whether seeking a traditional bank or online bank that has no physical offices, the FDIC advises to make sure that the institution is legitimate and that deposits are federally insured.

The following are safety guidelines for those considering Internet banking:

1. Seek key information about the bank posted on its Web site. Read the “About Us” section that describes the institution where a brief history of the bank, the official name and address of the bank’s headquarters, and information about its insurance coverage is provided.

2. Be on the watch for fraudulent Web sites. Keep an eye out for copycat Web sites that use a name or Web address very similar to that of a real financial institution. These sites hope to lure in unsuspecting customers who might provide personal information, such as an account number and password.

3. Verify the bank’s insurance status. Customers should look for the familiar FDIC logo or the words “Member FDIC” or “FDIC Insured” on the Web site. Some banks operating on the Internet are not insured by the FDIC, such as those chartered overseas. Customers who choose to bank with these types of banks should know that the FDIC may not insure deposits.

4. For insurance purposes, banks may use different names for online and traditional services. This however, does not mean customers are dealing with separate banks. To determine maximum FDIC coverage, deposits at the parent bank are added together with those at the separately named bank Web site and are insured for up to the maximum amount covered for one bank.

5. Only deposits offered by FDIC-insured institutions are protected by the FDIC. Products such as mutual funds, stocks, annuities, and life insurance policies sold through Web sites or at the bank itself, are not FDIC-insured, are not guaranteed by the bank, and may lose value.

Protecting Privacy

Bank customers often want to know how their personal information is used by their bank and whether it is shared with affiliates of the bank or other parties. As of July 2001, banks are required to provide customers with a copy of their privacy policy, regardless if business is conducted online or offline.

Customers should be advised that banks may want to share information about their customers to help market products specific to needs and interests. Customers who do not wish to participate in information sharing have the right to prevent the bank from sharing personal information with any parties not affiliated with the bank.

Some companies may also track the Web browsing habits of their customers while at the bank’s site, to better understand interests. Customers can ask whether a specific bank track browsing habits if these practices pose a concern.

Protecting Transactions

Learning how to safeguard banking information, credit card numbers, Social Security Number, and other personal data is of vital importance when conducting business on the Internet.

Customers who want to ensure their transactions are secure should carefully examine a bank’s Web site for information about its security practices, or contact the bank directly. Examples of security features include:

1. Encryption: the process of scrambling private information to prevent unauthorized access. Some browsers display a small icon on the screen that looks like a “lock” or “key” when customers conduct secure transactions online.

2. Passwords or PINs: When customers access an account online, a password or personal identification number (PIN) should be required. Passwords or PINs should be unique and changed regularly. Avoid birthdates or numbers or words easily guessed by others.

3. General security: Virus protection over personal computers and physical access controls should be used and updated regularly.

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Seychelles Banking: Easy Rules, World Class

Seychelles Banking: One of The Best In The World To Transact With.

The Republic of Seychelles comprises of 155 islands spread randomly in the lap of the calm Indian Ocean. Seychelles have population of about 81,000. English, French and Seychellois Creole are the three official languages of the country.

The capital of Seychelles is Victoria. Seychelles gained independence from the United Kingdom in 1976. The people of Seychelles are hardworking and trustworthy. That is why Seychelles has continued its development even after it decided to cast the British crown aside. The economy of Seychelles has developed greatly after its independence.

This growth has been caused by the practical steps being taken by the government of Seychelles to ensure the economy’s growth and to exploit its dependence on the flourishing tourism sector.

In the past few years Seychelles has recognized the importance of the finance and financial services sectors, and that of offshore companies with the introduction of the zero Seychelles tax company as well. The government of Seychelles has focused on the development of these offerings by taking several legislative steps.

The Seychelles Monetary Authority was established in 1978 as the bank of issue. It later became the Central Bank of Seychelles in 1983. Other government banks operating in Seychelles are the Seychelles Savings Bank and the Development Bank of Seychelles.

Five major commercial banks operate in the Seychelles, namely Barclays, Nouvobanq, Banque Francaise Commerciale Ocean Indien, Bank of Baroda, and Habib Bank. Development of an offshore banking center was announced in 1999.

Seychelles banking is governed by the Financial Institutions Act 1984 as amended in 1995. The licenses to banking companies are only issued to those banks which have been incorporated under the Companies Act 1972 or foreign companies which have been registered under the same act.

The banking license issuing authority in Seychelles is the offshore Banking Department of the Central Bank. Licenses are usually issued separately for domestic and offshore banking. But in some cases licenses are issued for both at the same time. When licenses are issued for both offshore and domestic banking, the bank has to provide offshore and domestic Seychelles banking services a different branches.

Banks providing offshore Seychelles banking services are permitted to maintain numbered accounts for their clients. The annual license fee for Seychelles banking companies is not very large. This fee is payable to the Central Bank in any convertible currency. Currently there are five licensed foreign banks in the Seychelles, and two domestic banks which have been listed above.

As the Government of Seychelles is particularly interested in developing the financial sector and tuning it to compete with other tax havens and banking centers such as the Cayman Islands, Switzerland, and Mauritius banking, special dispensation has been granted to the taxation of banks.

All of the licensed offshore Seychelles banking companies are exempted from taxes and duties for a period of 20 years from the date on which license was granted to them. This 20 year tax holiday serve as an attractive incentive to banks willing to go offshore.

An offshore or non domestic bank may decide to pay business tax in Seychelles on its taxable income as agreed with the Commissioner of Taxes.

The National Assembly of Seychelles passed the Central Bank of Seychelles Act 2004 in December 2004. This Act is aimed at providing legislation to enable the Central Bank to operate as an independent institution without any intervention from the government, and to ensure independent growth and regulation of the banking sector ensuring in it, confidence, transparency and efficiency.

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Julian Davidson asked:

Banking definitions to know in a society that needs money to purchase many of the necessities of life, banking is a very important business. It primarily deals with finances and all the instruments related to credit so it is important to know the important banking definitions. Banks are the financial institutions that act as the instrument in transferring monetary values from a customer to a seller, merchant, or to another individual.

We see a lot of banks and sometimes we may wonder what they have in common and how do they differ from each other. Banks have been differentiated according to their primary functions, the primary functions being acceptance of deposits and loans. The deposits are open to withdrawal and transfer via checks.

What are the activities in the bank?

* As a payment agent, the banks provide checking accounts that customers use to pay checks. There are also other means to pay like the telegraphic transfer, the automated teller machines or ATM, or the EFTPOS (Electronic Funds Transfer at Point of Sale).

* Issuance of debt securities like banknotes, promissory notes, and bonds when banks borrow money from current account deposits.

* Issuance of bank drafts and bank checks

* Lending of money to customers through mortgages or loans

* Provide letters of credit, guarantees, and performances bonds

* Acceptance of documents and other items for safekeeping in safety deposit boxes

* Payment services that cater to government, businesses, individuals who prefer to transact through the bank instead of non-bank remittance services.

* Foreign currency exchange

* Inter-bank clearing and settlement of payments regardless of geographical locations

* Intermediation for credit

Banking is a process that involves a bank and its customer. The bank has been defined previously. The bank’s customer is that individual who keeps an account in the bank and agrees to be covered with the laws that govern banking.

The government regulates most commercial banks and they need a license to operate. In order to get a bank license there are requirements like minimum capital, minimum capital ratio, fit-and-proper qualifications for the owners, and board of directors, and the approved business plan. There are some financial entities that are exempted from licensing (some partly, some fully) like the credit unions.

What are the types of banks?

Since we’re talking about banking definitions, we might as well define the types of banks, there are many and certain banks specialize in specific areas.

Retail Banks are banks that deal directly with the individuals or small businesses. There are different banks under this type:

* Commercial bank

Commercial banks have a variety of services aside from deposits and loans. The banks that fall under this category are the national banks, trust companies, stock savings banks, and industrial banks. Aside from the primary functions, they also handle investments and many facets of savings like time deposits.

* Community bank and Community development banks

These are financial institutions that are operated locally. They are regulated to provide services and credit within their local jurisdiction, therefore catering to underserved customers.

* Savings bank

After Internet Banking, Mobile Banking or M-Banking has become the buzz word in the industry. It’s a fact that Internet Banking has given a boost and has shown a successful way to consider it as a good alternative procedure against physical branch banking. Now where ever you are, you can access your bank account and you can do lot more things like checking your account balance, transfer money to some other account, pay your utility bills online and so on, just by comfortably sitting at your home or office. But, the technical disadvantage of Internet Banking is, you have to have internet connectivity and a computer. Definitely it’s not a big hindrance in US or Europe or in the other developed countries, but if one considers the developing economies, then it’s a genuine problem and more specifically in the tier II cities.

And here Mobile Banking comes into the picture to address the basic limitation of Internet Banking. If we only consider Asian developing countries, the availability of mobile connectivity is really huge. Where one may not find out a landline telephone or an internet connection, but still in those remote places getting mobile connectivity is not a major issue today.

So, Mobile Banking has given the traditional banking a newer look “Anywhere Banking”. Now you don’t need a PC or a laptop with internet connectivity, just you need your cell phone with you. Considering the Asian economy countries like China, India and Korea have seen the mobile boom in last one decade. A projected value of mobile connectivity in India shows that it will touch 180 Million subscribers by the end of 2008, where it was pegged at around 2 Million in the year 2000. In Korea, more than 70% of the entire population is carrying mobile devices.

The biggest advantage Mobile Banking provides to the banks is that it helps to cut down the costs as it’s even more economic than providing tele-banking facilities where banks have to keep hundreds of tele-callers. Additionally, Mobile Banking helps banks to upgrade the quality of services and nature of customer relationship management. Using Mobile Banking, banks can communicate to the defined cluster of clients. The offers can be customized and this personalization can give the banking industry a huge mileage, even at a lower cost. Again, using the same mobile channels, banks can up-sell and cross-sell their highly complex financial products to the specific set of customers which can be coupled with the selling strategies of Credit Cards, Home Loans and Personal Loans etc. On the contrary, the service providers can also accrue more business by providing the Mobile Banking services to their clients. Countries like Japan, Korea or Singapore where the mobile connectivity has already reached its saturation, the service providers can make handsome business by providing additional banking services to the same static client base.

In the services front, different banking services can be provided, depending upon the banking regulations in respective countries which may include Account Balance Enquiry, Account Statement Enquiry, Credit/Debit Alerts, Bill Payment Alerts, Cheque Book Requisition, Transaction History, Minimum Balance Alerts, Fund Transfer Facilities, etc.

Mobile Banking activities can be categorized in two different manners.

1. By the Nature of Service: It can be any of the two, either Enquiry Based or Transaction Based. For example, Account Balance Enquiry or a Cheque Book Requisition can be the good examples of Enquiry Based Services where a Fund Transfer or a Bill Payment is a Transaction Based activity.

2. Depending on the Originator: Again there can be two different types of services; Push and Pull, depending on the nature of the originator. A Push based service is from the Bank to the Client and vice versa. For example, Bill Payment Alert can be a Push based service, when getting Recent Account History is a Pull based one.

In different countries, Mobile Banking has already gained its popularity. For example, in the South Korean market LG Telecom teamed up with Kookmin Bank to provide their Mobile Banking services in 2004 and since then they have seen a nice and steady growth. In India, Reliance Infocomm has started providing Mobile banking services to ICICI Bank and HDFC Bank through their R-World environment.

The Mobile Banking services will become more popular once the availability of the smart phones or PDA phones shall increase as Smart Phones come with larger screens and bigger memory size. In the application development front, both J2ME and BREW have done excellent work and industry expects by the year 2012, more than 80% of the mobile handsets will be able to run stand alone Mobile Banking applications and that time it will be “Anywhere Banking” in real sense.

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There was a day when personal banking required a trip to the bank, standing in often long lines, and making a transaction via a bank teller. Money was accessible only at a brick and mortar location. Any financial needs not taken care of by the end of the business day would have to wait until the next. Access to one’s money was dictated largely by the bank’s hours of operation.

Times have changed. Today, with the advent of the Internet, accessibility to one’s finances is more convenient than ever. With online banking there are no long lines or gas-guzzling drives to the bank. Transactions, bill payment and ordering new checks can all be accomplished with the click of a button in the comfort of one’s own home. ATMs allow instant access to cash. For some people, there is no brick and mortar bank behind their online accounts – their banking is conducted entirely with an Internet bank.

In fact, online banking has become the preferred transaction method for most of America’s banking customers. While an online transaction can take just under three minutes, it can take nearly 10 minutes at a bank to conduct that same transaction due to waiting in line and interacting with a branch teller.

While some may have questioned the validity of online banking in the 1990s, it has proven to be one of the most valuable assets banks can offer their customers today. While fewer than one in seven Americans were online in 1995, two out of every three Americans are online today, according recent statistics. Americans are surfing the web, conducting e-commerce, and examining their bank statements from their personal computers at rates much faster than in the time those things could be accomplished apart from a computer.

With the advent of the Internet in the 1990s, confidence in this new form of collecting and transferring information was an obvious pathway for banks to pursue. It gave bank customers what they never had before — access to their money 24/7. Features have become more sophisticated and user friendly through the decade. Today’s banks offer online banking services which allow users to conduct a variety of transactions – everything from account to account transfers and paying bills to applying for a loan or making an investment. Especially convenient, online banking allows users to instantly view their accounts, balance the books, and monitor spending. And with the use of personal finance programs, data can be easily imported making personal financial management easier than ever. Some banking programs even allow users to monitor all of their accounts at one site regardless if they are with their main bank or with another institution.

Online banking has also opened doors for those shopping for a loan. Online lenders make applying for a loan easy and convenient, including everything a customers needs to make an application, including application forms and instant assistance on their website. The success of these types of services have allowed consumers to seek the best terms and have brought about a new level of competition between banks looking to expand their bottom line.

One of the most important features to the growth of online banking has been the development of protection barriers to safeguard users and their money. Personal Identification Numbers (PINs) and/or passwords have allowed users to authenticate and protect accounts and transactions.

Indeed, the Internet has proven to be a powerful and growing tool for today’s consumers. Through it, online banking has provided customers more control over their finances and freed up time that would have been spent standing in a bank line. But as with many things, precaution and education are important elements for online banking customers. At the end of the day, online banking succeeds only with the vigilance of the banks and their customers.

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With all the attention online banking has received in the last couple of years, it seems there are new online banks popping up everywhere. Users are choosing online banking for its ease and convenience. And while issues of identity theft are important factors to consider with online banking, it has not stopped people from utilizing the Web to streamline their finances.

Even more importantly, recent studies suggest that Internet banking doesn’t just make life easier, customers who choose it seem to be more satisfied with their bank. The two areas of greatest satisfaction fall in the categories of the convenience online banking provides and the ability to pay bills online. One recent industry report indicated that satisfaction with online banking services is up 5.5 percent. The report also shows that users who pay their bills online experience not only satisfaction with the ability to bank online, but with their specific banking institution, suggesting users have strong confidence in their bank’s ability to secure identity. In fact, similar reports have also shown that those who pay bills online retain their business longer at a particular bank than those who do not use a bank’s online service.

As a result, banks are seeing tremendous growth in online service. One major commercial bank cited that in 2004, there were 3.4 million customers paying bills online, followed by an increase to 6 million online bill payers just a year later. Many bankers believe those kinds of increases are the result of services such as online bill pay that customers find most appealing.

Many first-time users come to online banking to access their account information such as account balances and check activity. That is followed by the ability to transfer funds between accounts. And finally, many users then move into online bill pay. Perhaps they start with paying a few utilities online at the utility’s website. They may then look into the online bill pay service offered by their bank. Now, banks are seeing more and more users receiving bills electronically.

Yet for some bank customers, concerns about identity theft keep them from trying online banking. Interestingly, their counterparts who do use the Internet to conduct banking do not seem to hold those same perceptions. Most are satisfied with the level of online security offered by their banks. The challenge then for banks lies in the continued education of their customers to try online banking and discover for themselves the high level of security in place at most banks. Once those customers give online banking a try, perceptions of risk seem to decrease, reports indicate. Surprisingly, these same reports discovered that today’s security measures put in place by PC users and banks have many ID thieves targeting potential victims offline.

The following are a few tips to consider when choosing an Internet bank account:

1. The Annual Percentage Yield (APR) may be higher with Internet bank accounts, and therefore one of the most important attractions for those looking for a high yield. Conducting transactions online may save the bank money, and those savings may then be passed on to the online customer, most often in the form of higher savings rates.

2. Ability to access money. Online users need to consider what steps are involved in accessing their money in an online account.

3. Ability to link accounts. Users want the ability to link various accounts to one another, making it easy to move money seamlessly between online bank accounts.

4. What types of additional services are available? Potential users should be interested in not only banking online, but purchasing CDs, applying for a mortgage, and paying bills online.

5. Security. Users must confirm that their online bank is FDIC insured and that the security system can be trusted.

6. Ability to set up automatic savings account. There’s no reason not to save today with an online account that electronically deposits money into a savings or money market account.

Banking for High Net Investors

Tax consideration for offshore banking

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