As we write, HDFC Bank has slashed its deposit rates in line with most other banks. So, the maximum that HDFC Bank offers on its fixed deposits is 5.5 per cent.
Yes bank on the other hand offers an interest rate of 7 per cent on its 1, 2 and three year deposit and as much as 7.75 per cent for senior citizens. This is a good 2 per cent more than what other major banks in the country are offering. The question that is now asked is: Is it worth taking the risk?
Are fixed deposits of Yes Bank really safe now?
In the past, we have had no history of a full-fledged commercial bank collapsing. There have been instances of cooperative banks like PMC almost going bust, but, the commercial banks have either been taken over or are bailed out.
In the past, we have seen Global Trust Bank being taken over by the Oriental Bank of Commerce and more recently, Yes Bank seeing a virtual bailout by State Bank of India.
Now, coming back to the deposits of Yes Bank - are they really safe?
One of the problems that Yes Bank faced in the past apart from bad loans was the exodus of depositors. However, things have changed after State Bank of India stepped in. Deposits for the second quarter ending Sept 30, 2020 increased 15.7% sequentially, which indicates that deposit holders showed confidence since State Bank infused capital into the Bank.
Yes Bank raises Rs 15,000 Crores
Apart from this, Yes Bank also raised Rs 15,000 crores from some marquee names. The money raised through the Follow On Public Offer is expected to provide a good buffer to the bank. However, one of the most important things to remember is that deposits of upto Rs 5 lakhs are insured by the Deposit Insurance and Credit Guarantee Corporation and hence to that extent there is safety.
At the moment there is little worries in investing in the fixed deposits of Yes Bank. However, if you remain a skeptic, then we suggest that you park money only to the extent of Rs 5 lakhs or less. At the moment, once the bank is virtually bailed out by a name like SBI and a new management in place, we do not expect another calamity as such.
Interest rates in the economy have fallen drmatically in the last 1-2 years, making it very difficult for investors, especially those who depend on interest income. One has to take a calculated risk or go for deposits that fetch just 5 per cent, which is lower than the present inflation.
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, commodities, debt, mutual funds and tax planning. Sunil is currently Managing Editor for Goodreturns.in