Most people consider their bank fixed deposits extremely safe but some recent events in Cyprus (an euro zone country) bust this myth of safety of bank deposits. The Cyprus government has decided to use the depositors’ money in bank account to pay off its debts. Deposits greater than €100,000 were frozen by the government but deposits of up to €100,000 remain protected. This is because deposits in banks up to €100,000 is insured while above €100,000 are uninsured. So the deposit that is insured would be untouched.
If such a thing can happen in Cyprus, the question is can it happen in India and how safe is your deposit with banks?
Here are some facts about your bank deposits in India:
- In case of bank closure, license cancellation or liquidation etc, you can lose the entire amount deposited except the amount which has deposit insurance
- Your deposits and interests up to 1 lakh with banks is insured by Deposit Insurance and Credit Guarantee Corporation (DICGC) which is wholly owned subsidiary of the Reserve Bank of India (RBI)
- All kinds of deposits with banks like fixed deposits, recurring deposits, saving and current account deposits are covered (limited to Rs 1 Lakh per customer per bank)
- The DICGC is liable to pay the depositors the claimed amount within two months of claim receipt
- If you have deposits with more than one bank, the cover will be separate for different accounts
- The cost of deposit insurance premium is borne entirely by the insured bank
- Currently all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks and cooperative bank are insured
- Deposits of foreign governments, deposits of central and state governments, inter-bank deposits, deposits of the state land development banks with the state co-operative bank is not insured
What should you do?
Given the above situation, you should be careful about choosing your bank.
- The public sector banks are the safest as they are backed by government of India. In case there is some problem with the bank, the government would bail it out in most cases. Remember Government can print currency!
- The bigger private banks are also a safe bet. They are generally too big to fail, as failure of a large bank would lead to domino effect taking a lot of smaller banks with it. Remember the bigger banks like Citibank in US were bailed out while the smaller ones were left to survive.
- Usually smaller co-operative banks have higher risk of license cancellation or closure. So if you must bank with them try to keep your deposit within 1 Lakh limit. If you look in the past, RBI has cancelled licenses of several co-operative banks like Bharuch Nagarik Sahakari Bank Ltd, Chatrapur Co-operative Bank Ltd, Nagari Audyogik Sahakari Bank Niyamit, Ghaziabad Urban Cooperative Bank.
So to be on the safer side, you should diversify your deposits in different banks and bank mainly with bigger well known banks.
i want to fd in gramin bank of aryavat in Agra …is it safe…
Gramin Bank of Aryavat is a Regional Rural Bank with Bank of India as its sponsor. This is like a Government bank and safe for your fixed deposits etc.
I want to go with bandhan bank with the fd of rs 1700000 is it safe
Yes its a new private bank and is safe – but always monitor you bank if you have large deposit with the same.
How i can monitor .. My some relative forbidded to go witch private bank fd scheme nd bandhan is newly opened bank that’s why more confusion before investing i m totally confused…
You can monitor by keeping your eyes and ears open to news related to your bank – reading financial blogs is one way!
Mr.Amit, sorry for me not putting it clear. I do not want to put all the eggs in 1 basket. I was thinking about diversifying in multiples with few banks in complete long term in NRE FD, as I don’t need to touch the actual principal at all for the next 10 years. For example..
30L in DB @ 9% they have max tenure of 5 years with 1% pre-mature penality clause
30L in RBL @ 8.75 they have max tenure of 10 years with 1% pre-mature penality clause
30L in DCB @ 8% they have max tenure of 10 years with 0.5% pre-mature penality clause
30L in SBH @ 7.75% they have max tenure of 10 years with NO pre-mature penality clause
30L in YES Bank @ 7.75% they have max tenure of 10 years with NO pre-mature penality clause
DB = Deutsche Bank, RBL = Ratnakar Bank Limited, DCB = Development Credit Bank, SBH = State Bank of Hyderabad
And the Interest earned is tax free, 10% part of that earned interest I will plan to invest in mixture of debit / mutual / balanced fund for the next 10 years in monthly basis.
Please any advice on the safety & security of the corpus is greatly appreciated. Thank you
Sorry for the late reply. As per risk profiling following would be the rank ordering (from low to high risk) – SBH < Yes Bank < DCB < RBL < DB - which sows in the interest rate offered :). I am not sure what rules apply for winding off a foreign bank but I am sure RBI would not let it go until it fulfills all its liability. As per me you can go ahead with your plan. But in case you have more doubts you might want to consult an expert as the amount involved is very high and for fixed income investments safety of principal is very important.
Can you help me, if given 1.5c to invest in multiple banks NRE FD which top safety & secured banks would you choose personally?
I would have gone with big private banks – ICICI/HDFC & Axis and any government bank. These private banks are “too big too fail” category. But also note that no private banks have defaulted in India in last several years. The last one to close was GTB (Global Trust Bank) in 2004. In that case too it was merged with OBC and depositors did not loose anything. So may be we are being too cautious!
DB is an Foreign Bank, SBH is public bank, rest all DCB / RBL / YES are Private bank. So how safe is foreign bank in India? in-terms of defaulting or….? Maybe I should invest in the ICICI / HDFC / AXIS in long term, to make sure my principal is safe.
BTW, is it true if any (public/private/foreign) bank exits / defaults / windup chances are they will be merged / amalgamated and customers FD / Savings Amount is still safe with the new take over bank? (or) is it not necessary that it has to be merged / amalgamated at all? leaving all customers in distress? One more things if really if any bank is about to exit / default / windup will the customer not know at all until the last minute? Maybe I am just too concern trying to know all these stuff before I actually start investing. Thanks once again for all the helping info.
I am not sure about rules related to foreign banks but my guess is RBI won’t let it exit before it pays its liabilities. Also all banks are reviewed multiple times by RBI and if there is a problem it’s available in public domain. In case you carefully follow the news about your bank you should get time to exit your FD.
About what if a bank closes its chances of merger would be on case to case basis. There are several co-operative banks which close every year but they are not merged. So it all depends on the government and situation at that time.
The only suggestion keep monitoring the bank where you have big deposits and you would find the right time to exit.
Deutsche Bank India is currently offering 9% NRE FD Interest Rate. Is it safe to do FD in Deutsche Bank India? As I am planning to NRE FD around multiples upto 1.5c. Recent news about this bank overseas has issues about exit in few countries. Not sure if this bank is safe and will not exit from India? Please need your advice?
Deutsche Bank worldwide is not in great shape. IF I were you I would not take the risk with such huge amount for such minor difference in interest rate.
Hi Amit, can I check did you receive my reply? as I just noticed it does not show on your website anymore, previously it showed as waiting for moderator.. but now none at all. Is it my message sensitive?
Oh it appears “waiting for moderator” when you comment. It appears on site only after it’s approved. Sorry for the inconvenience but it’s to stop SPAM.
Out of the listed banks which one will be better and safe in terms of fixed deposit interest rates
1. State Bank of India
2. Punjab National Bank
3. Vijaya Bank
4. Axis Bank
You can also suggest any other banks also
Banks in order of safety:
1. SBI
2. PNB
3. Axis
4. Vijaya
All government banks and all big private banks are safe as any failure would lead to domino effect leading to severe economic crisis.
What about India post term deposit?
Post Office Term deposits are safe as it’s backed by Government of India
It is high time that the Coverage of Deposit Insurance by RBI per bank per depositor should be increased to a minimum of Rs. 15 Lakhs. The present 1 lakh was framed long years ago is grossly inadequate. Will RBI and Finance Ministry will take action and protect the innocent middle income group depositors on top most priority?.
Totally agree with your views – I hope RBI takes action soon
how safe is deposit with Multi – State credit companies. Are the deposit insured by RBI? Government agencies
Multi – State credit companies offer very high interest rate which does not seem sustainable to me. I would avoid any such deposits. These deposits are nor insured nor regulated by RBI.
Hi,
RBL Bank offers 9% for FD. Is it a safe place to park money? Thanks
Yes its safe. And if your too worried about it’s safety you might want to limit your exposure to Rs 1 Lakh which is insured in case of default by bank.
If I want to invest a money on somebodys elses behalf,for a period of 10 years, which would be safest bank. and what would be interest rate.As It would be my responsibility.What is the best procedure to work this out.
Is it possible to take an insurance for an amount greater than 1 lac.Pl. let me know.
The safest bank would be big Government Banks like SBI, PNB, BoB etc. Also big private banks like ICICI and HDFC bank are too big to fail. You cannot take additional insurance for deposit of more than 1 Lakh. We have comparison of interest rates across major banks here.
Fd in uco, Allah a bad or Andhra bank which one is safer
All 3 are Government Banks and all three are equally safe.
Very nice article Amit. Keep up the Good work. God Bless You
How we can rate the performance of a cooperative scheduled bank. Is it safe to have fixed deposits in NKGSB cooperative multistate scheduled bank. Pl. reply.
@Rajiv that’s a thought provoking question as I have never dealt with co-operative banks personally. I would recommend to keep not more than Rs 1 lakh in co-operative banks until there are compulsions. But if you ask me to rate, I am not aware how to do it.
I would be good if I see no news of warning/caution by RBI or fraud happening in the bank.
Though frauds also happen in bigger banks like Bank of Baroda recently, but they don’t impact bigger banks much. For smaller bank it can impact the operations to a large extent!
I am aware of the fact that Fixed Deposits in India are RBI insured for 1 lakh Rupees. Does that mean if I deposit 20 Lakhs in a bank and if that bank goes bankrupt, I will get 1 Lakh back??
Assume that I have 20 lakhs in hand where do you think I can go and deposit?
Yes your interpretation is right. But as I said in the post most of bigger private banks and all of Govt owned banks are safe!
Is It Safe option to do fixed Deposit in Canara Bank India? if not than please kindly describe briefly …
Thanks in Adv
Is It regulated by RBI ?
All the banks in India are regulated by RBI. Canara bank is a Govt of India owned bank and 100% safe. Go ahead with your deposits with them.
Nice information and very timely