Have you kept your gold jewellery in bank safety lockers? If yes, then you should make a fresh assessment about whether the rent you pay for it alone is adequate to secure your valuables. With gold prices on the rise, the rent that you pay for bank safety lockers will not be sufficient in case of unforeseen losses, as the bank is liable only for up to 100 times the annual rent. Here is a guide on bank safety lockers, the rules governing them, the need for taking a separate insurance for expensive items such as gold and alternative options to secure the yellow metal.
What is the liability of banks for the gold jewellery in their safety deposit lockers?
The Reserve Bank of India (RBI) has clearly specified the liability of banks for valuables stored in lockers arising out of unforeseen events such as fire, burglary and frauds committed by employees. The liability is restricted to 100 times the annual rent of the safety deposit locker. So, if your annual locker rent is ₹2,000, the bank’s liability will be only ₹2 lakh, which is inadequate as it will not be able to cover even two sovereigns (16 grams) of gold jewellery at current market prices.
“As banks cannot claim that they bear no liability towards their customers for loss of contents of the locker, in instances where loss of contents of locker are due to incidents mentioned above (fire, theft/ burglary/robbery, dacoity, building collapse) or attributable to fraud committed by its employee(s), the banks’ liability shall be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker,” the RBI said.
“A bank’s liability is capped at only 100 times the annual rent, which may not cover the actual value of gold stored today, especially considering the gold price rally. Moreover, banks have zero liability for natural calamities like floods or earthquakes, so paying extra rent doesn’t actually guarantee full safety,” said Anooj Mehta, vice president, 1 Finance, a personal finance advisory firm.
Can you insure the jewellery stored in lockers?
Banks do not provide insurance for gold jewellery deposited in their lockers. This is because they do not have a record of the contents in the locker, which is known only to the customer. “Banks shall clarify in their locker agreement that as they do not keep a record of the contents of the locker or of any articles removed therefrom or placed therein by the customer, they would not be under any liability to insure the contents of the locker against any risk whatsoever,” the RBI said. “Banks shall under no circumstances offer, directly or indirectly, any insurance product to its locker hirers for insurance of locker contents,” it said.
“Customers can and should insure their valuables stored in a locker depending on their value, because the bank does not insure your locker contents for you,” Mehta said. Customers can purchase insurance for their jewellery from general insurers. “Customers must find a separate insurance policy through an independent insurance policy provider that deals with general insurance for jewellery and other high-value items,” said Mukesh Pandey, director, Rupyaapaisa, a financial consultant that provides loans through tie-ups with banks and NBFCs.
“Policies cover theft, burglary, fire, and natural disasters and will continue to provide coverage for gold items that are stored in a bank locker,” he said. “The best option is to buy a ‘Valuables and Jewellery’ add-on (cover) under a standard home insurance policy. This is comprehensive; it covers your gold against theft or burglary, whether it is lying in the bank locker, kept at home, or even being worn by you at a wedding,” Mehta said. General insurers such as HDFC ERGO and Oriental Insurance provide jewellery insurance that covers damage arising from fire, theft, burglary and even natural calamities.
What happens if losses are from natural calamities?
The entire liability in such cases is on the customer. “The bank shall not be liable for any damage and/or loss of contents of locker arising from natural calamities or ‘Acts of God’ like earthquake, floods, lightning and thunderstorm or any act that is attributable to the sole fault or negligence of the customer,” the RBI said. “Banks shall, however, exercise appropriate care to their locker systems to protect their premises from such catastrophes,” it said.
Is there a better option to secure gold and unlock its value at the same time?
A gold overdraft (OD) offers customers a smarter way to secure their gold jewellery while unlocking the financial potential of the asset. The lender charges interest only for the funds that you utilise and the processing fee for OD is also quite low.
“The way in which interest is charged on gold OD is advantageous for customers as they only pay for the amount they have used to get the money, and there are very low processing costs associated with obtaining the loan,” Pandey said. The processing fee is typically 0.25%-0,5% of the loan amount. The interest is the same for both OD and gold loan.
“Gold OD is an alternative a customer can opt for if they own high-value jewellery or physical gold investments. When you pledge gold for an OD, the bank acts as the custodian and assumes 100% liability for it, unlike the limited liability in a locker,” Mehta said.
“Since you pay interest only if you withdraw money, you just pay an annual processing fee which may be cheaper than the annual rent of a large-sized locker in a private bank,” he said. But since the gold is pledged, it will work out well only if you consider the yellow metal as an investment, he stated.
“You may not always be able to take it (gold) whenever you require. This option may become cumbersome for regular-wear jewellery,” Mehta said. “For family-owned jewellery ornaments, a high-grade electronic home safe combined with a strong insurance policy is the most practical alternative to bank safe deposit lockers,” he said.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
