Bank fixed deposits (FDs) are considered a safe investment option because they offer capital appreciation, guaranteed returns, and regulatory protection from the Reserve Bank of India (RBI). But of late we have seen in many cases that investors were unable to withdraw their deposits due to RBI restrictions in the wake of financial irregularities and regulatory lapses by some lenders impacting the financial health of lenders. One of the cases we can recall is Maharashtra Cooperative Bank (PMC Bank). After the crisis unfolded, the RBI restricted depositors for months to access their funds and deposits, including FD withdrawals, because of severe financial irregularities within the PMC Bank.
Now in the news is IndusInd Bank, which has been reeling under the pressure of deteriorating asset quality and higher provisioning for some quarters now. The private sector lender’s gross NPAs stood at 2.24% of gross advances in September 2024 against 1.92% in the same month a year ago. Its bottom-line and capital adequacy ratio too have been on a declining path. However, the bigger concern that is troubling the bank now is “discrepancies” in certain portfolios. The bank’s internal review has estimated an adverse post-tax impact of 2.35% in its net worth as of December 2024. This disclosure came after the RBI directed banks to conduct a thorough review of their investment portfolio.
Amidst the IndusInd Bank saga, the debate over the safety of deposits in banks is expected to emerge again. Also, the recent news of financial irregularities in IndusInd Bank has increased the concern of depositors about the banking sector as a whole.
Also read: IndusInd Bank crashes 20%; Brokerages slash target price by 30%
Are your deposits safe in banks?
Now the question arises whether your hard-earned money deposited in banks is really safe? Especially fixed deposits have long been considered safe investments, but will this trust remain in the current situation?
In today’s time, the first priority of every investor is security. For decades, bank FDs have been considered a stable and reliable investment option. Its biggest feature is fixed returns and risk-free nature. But is FD as safe today as it was earlier? Let us understand its benefits and security in detail.
Fixed Deposit: Why is it a safe investment option?
There are three main reasons why people prefer fixed deposits—safety, liquidity, and easy access.
Safety and stability: In FDs, your money is protected from market volatility. FDs are not affected by stock market falls or fluctuations in interest rates. Therefore, it is the right choice for those who want to avoid risk.
Advantage of liquidity: Compared to other investments, it is easy to withdraw money in FDs. Even though in some cases you have to pay a penalty on premature withdrawal, this option is still available, which is not available in many investments.
Guaranteed returns: The stock market or other investment instruments keep fluctuating, but the returns in FD are pre-determined. This gives you an idea in advance of how much money you will get on maturity.
Is FD the right option in the current situation?
If your priority is safety, then FD can still be a great option, provided you choose the right bank.
Keep these things in mind:
-Give priority to government and large private banks.
-Keep an eye on the financial position of the bank and RBI reports.
-If possible, invest by dividing the FD in different banks.
-If the government increases the limit of bank deposit insurance, it can make FD more secure.
Govt mulls raising the bank deposit insurance cover?
Reports suggest that the government is considering doubling the insurance cover on bank deposits from Rs 5 lakh. The move is aimed at addressing the concerns of senior citizens and general depositors in particular and strengthening confidence in the banking system.
However, this increase may require the Deposit Insurance and Credit Guarantee Corporation (DICGC) to increase the premium charges slightly.