Amit Chandan feels silly today thinking back one week earlier when he joined the mob in Gujarat as they rushed to remove their savings from ICICI Bank ATMs.

The mob fell prey to false rumours that the private sector bank had failed.

When the bank opened officially on Wednesday, Chandan felt even worse returning the Rs 50,000 he had withdrawn on Friday last when he unnecessarily panicked.

He is not alone. Scores of depositors do not realise that unique to India banks under the supervision of the Reserve Bank of India cannot go under  Moreover, even if a systemic crisis were to occur, the small depositor would have recourse to the deposit insurance scheme made mandatory to all banks.

In the event of any insured bank going in for liquidation, reconstruction or amalgamation, every depositor of that bank is entitled to repayment of his deposits in all branches of that bank subject to a monetary ceiling of Rs 1,00,000.

The insurance scheme provides automatic coverage for deposits in all commercial banks, including regional rural banks as well as co-operative banks in states that have passed the enabling legislation amending their local co-operative societies acts.

The Deposit Insurance and Credit Guarantee Corporation is the only organisation that provides deposit insurance in India.

Few depositors were aware of this enabling protection. More were afraid of being caught in the realms of what happened when Madhavpura Co-operative Bank went bust in 2001 on account of the pay-order scam.

Many in Ahmedabad continue to wait for DICGC to issue their Rs 100,000 cheques, and certainly did not wish to wait and apply for the next cheque should ICICI Bank be declared insolvent.

What most depositors like Chandan fail to realise is that in the Indian banking industry, the risk is almost negligible.

Scheduled commercial banks are semi-sovereign in nature -- partly by virtue of their shareholding as in the case of public sector banks, and even otherwise as a result of the statutory investments made in cash or near cash instruments.

The possibility of them going bust is thus not so real. Depositors should thus not be unduly worried should such a rumour arise.

For one, if they have prudently deposited their savings in various different banks, they can avail of the Rs 100,000 deposit insurance cover from each of the banks.

The more savvy account-holder opens separate fixed deposit accounts in the names of their spouse, children and parents.

Once again, they are ensuring against putting all eggs in one basket - in this case, in their own name. Banks identify accounts based on the name of the first account holder.

This thus gives depositors the opportunity to claim Rs 100,000 from each of the accounts under different names within a single bank. However, ensure that what you are doing is as per the Income Tax law.

One would not want the hatch man after you! In the unfortunate event a run on the bank does take place, the RBI has ensured that 30 per cent of a bank's deposits are in cash or near cash balances.

This is because Indian banks have to maintain 4.75 per cent cash reserve ratio and 25 per cent of their investments have to be in central government paper under the statutory liquidity requirement.

This is a unique phenomenon to India. In the US, banks have to only maintain three per cent CRR.

"Banks can thus convert 30 per cent of its liability in almost cash form, which is a big comfort to customer," points out ICICI Bank general manager retail, M N Gopinath.

The only problem ICICI Bank faced that Black Friday night was the logistics of getting money out and putting it into the ATMs, he adds.

At the same time, a depositor should not throw caution to the wind. Rather, he ought to be careful in his choice of banks.

In the unfortunate eventuality of a bank in dire straits -- like Nedungadi Bank -- the RBI intervened and arranged for a merger with a strong bank. The bank was merged with Punjab National Bank.

Chances of a customer losing if he has done his homework right are remote.

However, no bank in the world can survive if it has to pay out 60-70 per cent of its deposits immediately.

This is because being liquid to the extent of 30 to 35 per cent is as liquid a bank can get, be it State Bank of India or Citibank or even ICICI Bank. Else it is not in the business of banking and lending.

This explains why the RBI imposed a limit on individual withdrawals when the co-operative bank scandal came to light.

Doing it right

• First, choose the right bank.
• Always spread out your deposits across different banks.
• Do not panic and rush to withdraw deposits.
• Deposits are almost always insured.
• Do not give credence to rumours.
• Any RBI-supervised bank cannot be in dire straits without the apex bank knowing of it first.