With effect from 1 January 2021, savings account holders of IDFC First Bank, with balances less than Rs 1 lakh, will earn interest of 7% on their deposits.
The interest rate has been raised from 6% earlier, a surprising and rewarding move for bank account holders at a time when major banks in the country are offering up to 4% interest.
IDFC First Bank savings account balances above Rs 1 lakh will continue to earn 7%, as before.
In comparison, the State Bank of India (SBI), the largest bank in the country, currently offers 2.9% interest on savings accounts with balances less than Rs 1 lakh.
Is IDFC First Bank safe?
IDFC First Bank was formerly known as IDFC Bank and started as a wholly-owned subsidiary of IDFC in 2014. However, in 2018, IDFC Bank and Erstwhile Capital First announced a merger, forming a new entity called IDFC First Bank, on 18 December 2018.
It has over 260 branches and is a listed scheduled commercial bank. Deposits and savings account balances of all scheduled commercial banks aggregating up to Rs 5 lakh per customer are covered under the government's deposit guarantee insurance scheme.
The interest on savings accounts is not locked in and can be changed by the bank at will. New banks often offer higher rates to attract retail customers and expand reach.
ON Wednesday, the bank said in a stock exchange filing that its retail deposits have increased 100% year-on-year and 18% quarter-on-quarter, pushing its share price higher by over 26% in two days to a new 52-week high of Rs 47.20.
On 11 March 2020, the bank announced that it has signed Bollywood actor Amitabh Bachchan, as its first brand ambassador, attempting to expand its reach via marketing.
At the moment, there is no visible threat in IDFC Bank's viability. In fact, the deposits of the bank have a AAA rating.
However, the future is uncertain and suddenly if good loans turn bad, any institution can run into a problem.
It is important to note that full-fledged commercial banks in India are rescued by the Reserve Bank of India (RBI), if they run into the risk of liquidation, by taking over or bailouts. The two most recent rescue acts were Yes Bank in March 2020 and Lakshmi Vilas Bank in December.
It is, therefore, safe to say that the interests of small depositors of scheduled commercial banks in India have always been protected.
Also, this does not mean that IDFC First is likely to face liquidation; the article is simply addressing skeptics.
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