Are Fixed Deposits Safe? Concerns Grow Amidst IndusInd Bank Saga

As multiple cases of financial irregularities are coming to light, RBI is strengthening its restrictions on banking companies. With the earlier discovery of irregularities in Maharashtra Cooperative Bank, and now IndusInd Bank, depositors are questioning whether fixed deposits remain a safe investment option. The question is- should you still invest in FDs? 

Choosing the Right Bank Amid Rising Concerns Over IndusInd Bank’s Financial Health

Fixed deposits are considered to be a safe investment instrument since they offer guaranteed returns, capital appreciation, and regulatory protection from the RBI. They are preferred due to 2 main reasons: 

1. Fixed deposits remain unaffected by market corrections and offer a pre-determined return. Hence, they are suited for risk-averse investors. 
2. FDs are comparatively more liquid than other stock market instruments. Though banks may charge a nominal fee for premature withdrawal, your money can still be withdrawn at any time. 

IndusInd Bank has reported that unrealised portfolio discrepancies can affect post-tax profits by 2.35%. This has caused panic among depositors. In September 2024, the bank’s non-performing assets surged from 1.92% to 2.24%. Moreover, its profits and capital adequacy ratios have been declining steadily. Thus, it is crucial to choose the right bank for your FDs. 

Distressing Events of the Past

In 2019, when RBI unearthed financial irregularities in the Maharashtra Co-Operative Bank, it imposed a withdrawal limit of ₹1000 on depositors. This caused significant disruption and panic among FD holders. By choosing a bank with strong fundamentals and a transparent government structure, you can ensure the long-term safety of your investments. 

Government Plans to Raise Bank Deposit Insurance Cover

Several news reports report that the Indian government is planning to double the insurance cover on all bank deposits from ₹5,00,000. If implemented, it can substantially strengthen depositor’s confidence in the banking industry. This includes vulnerable people such as senior citizens. 

However, this may also lead to a marginal increase in premiums charged by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Conclusion

Despite concerns over regulatory failures in financial institutions like Maharashtra Cooperative Bank and IndusInd, FDs largely remain a safe investment instrument. However, choosing the right bank with strong financial fundamentals is crucial. The government’s plan to increase deposit insurance coverage can further enhance depositor’s confidence and offer enhanced protection.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.