The recent news of Bank scams and huge losses incurred by banks are making the common man jittery over the safety of one’s hard earned savings. Bank FD is the most natural option used by salaried class to park their savings to provide for the future needs. One, because the nationalised banks are owned by the government and its was indirectly a guarantee that your funds are in safe hands. Whenever there has been a doubt about the viability of a Bank, RBI has stepped in and ensured safety of investor deposit by merging of weaker banks with the stronger ones. Let’s have a look at the regulatory provisions to know how safe your deposits are.
Bank deposits in value terms are insured by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC), a wholly owned subsidiary of the RBI. The deposit insurance covers all commercial banks, local area banks, regional rural banks and cooperative banks. You should be aware that only Rs 1 lakh of your savings is insured. This limit has not been revised since long. As an investor you should also know the worst-case scenario in case something untoward happens.
Though this has been the provisions, the Government effectively stands guarantee for most deposits by bailing out banks. Banks as financial institutions are the backbone of any economy. Government had nationalised the banks in order to channelise savings of the people by offering them reasonable but assured returns and use the money towards development of the country by lending for priority sector as well as industries.
The business of banks is to accept deposits from people and lend money. The interest earned by lending is given to the depositors as returns on money kept with them. While lending the money various safety measures like collateral, guarantees are taken to ensure safety of capital, but procedural lapses and sometimes fraudulent practices by the employees, can result in losses to the Banks. RBI on its part keeps a strict vigil on the Banks lending or credit and the likely bad debts, where instances of losses and frauds have been few. The non-performing assets or bad loans which are non-recoverable are high but the efforts by RBI to reduce them by forcing banks to providing for losses from such loans will make the Banking system cleaner and less prone to further scams and bad loans.
The recent scams have been an eye-opener for depositors to PSU banks, and it would be too far-fetched to believe that entire Banking system is at risk. A prudent step would be to consult a financial planner to explore other options, that are equally safe and could offer better returns than a Bank FD.