Yes Bank is among the few banks probably along with IndusInd Bank and IDFC First, which offer you interest rates very near that 7% mark on deposits.
If we look at some of the larger players like SBI, ICICI Bank, HDFC Bank, PNB, Bank of Baroda etc., at best you can expect an interest rate of 5.5 per cent or thereabouts. An interest rate of close to 2 per cent more can always be tempting.
What happened at Yes Bank?
For starters, let's see what happened to Yes Bank and whether things have changed, making it safe to invest in the savings account and deposits of Yes Bank.
The bank ran into problems with risky loans, largely from a few big corporate houses, which turned good loans into bad loans. As things began taking a turn for the worse, deposit holders began to pull money and also savings account holders. Remember, Yes Bank was among the few banks that offered interest on savings account balances at 6 per cent.
When there is a sudden run on deposits and savings account, a bank can go bust. When the situation began to get worrisome, the Reserve Bank of India placed a moratorium according to which a withdrawal cap of Rs 50,000 was put in place to check panic cash outflow.
State Bank of India was asked to step in preventing a collapse of what was the fourth largest private sector bank in India. Subsequently, the withdrawal cap was removed and depositors and savings bank account holders interest was protected.
Is It safe to invest in Yes Bank Fds and Yes Bank Savings account now?
State Bank of India infused fresh capital into the bank, which calmed the nerves of deposit holders and savings account holders. Apart from this, Yes Bank raised a staggering sum of Rs 15,000 crores through a follow-on public offer.
Interestingly, many marquee names invested in the follow-on public offer, showing faith in the bank, thanks to the sheer backing of SBI.
This fund infusion is likely to help the bank going forward. The bank is also stepping-up efforts to ensure that collections are in place and bad debts are restricted.
Recently, Moody's Investors Service upgraded Yes Bank's long-term foreign currency issuer rating by a notch to 'B3' from 'Caa1' after Rs 15,000-crore capital raising. The lender also seems to be getting more inflows than outflows.
Fresh capital infusion, SBI backing, retention of deposits and ratings upgrade make the Yes Bank deposits and savings account safe now.
At the moment things seemed to have stabilized for the bank. As things stand, interest rates have fallen dramatically and Yes Bank deposits, which offer an interest rate of 7 per cent on 1 and 2 year deposits are pretty decent.
It is unlikely that a bank which could have virtually collapsed, is going to have a similar situation in the near future. Given the size of the bank, the government stepped in rather quickly and it is unlikely that a bank of the size of Yes Bank would be allowed to collapse. This makes the deposits of Yes Bank safe at least for a tenure of 1-2 years.
About the author:
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds, debt, commodities and tax planning.