Which Banks are Safe in India to put your hard-earned money?

Which Banks are Safe in India?

In less than 2 years, this is the 3rd collapse of a bank in India (after PMC Bank and Yes Bank). The RBI has forced Lakshmi Vilas Bank (LVB) to merge with DBS Bank India. And during this initial period, a restriction on withdrawals have been implemented – the account holders in Lakshmi Bank cannot withdraw more than Rs 25,000 across all accounts (savings account, fixed deposits, etc.); and this temporary restriction is per depositor and not per account. Once the merger of LVB with DBS Bank India goes through, the restrictions on withdrawals from Lakshmi Vilas Bank will be lifted.

Technically speaking, there is nothing to be alarmed with the moratorium that restricts withdrawal as it is only a temporary measure. And the money in Lakshmi Vilas Bank (LVB) bank accounts and the interest accrued will be protected by RBI in this merger. But all this is easier said for those who don’t have their money stuck in this bank. Isn’t it? And that leads to the question –

Which Banks are Safe in India?

To be honest, I am no judge here. And in general given the RBI monitoring, most banks are safe in India. At least we can say that bank depositors are protected in India. But nevertheless, some banks are safer than the others. And ‘safe’ or ‘safer’ here is a pretty subjective thing here.

Sometime back, I had written a post on which are safe banks for fixed deposits in India. In the post I wrote that most Indian banks are safe for most of the times as RBI does its job fairly well and hence, problems if any are more or less very rare. But that doesn’t mean that you can put all banks in the same risk bucket.

If I were looking to pick safe banks to park my hard-earned money, then I would give priority to the safety of the bank as well as ensuring the return of capital and not just return on capital on my bank FDs.

So with that said, if asked which are the safe banks in India, I would go with RBI-identified Systematically Important Banks (D-SIBs) in India. You can read about it here. These are banks that are too-big-to-be-allowed-to-fail banks of India. And which are these banks? These are:

  1. State Bank of India (SBI),
  2. HDFC Bank, and
  3. ICICI Bank.

Only three for now. RBI may add to this list in future as better and stronger banks emerge.

But what about other banks?

Here is a list the Public-Sector Banks in India: Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab and Sind Bank, Punjab National Bank, State Bank of India, UCO Bank, Union Bank of India.

And here is a list of Private Banks in India: HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, IDBI Bank, Yes Bank, Federal Bank, IDFC First Bank, Jammu & Kashmir Bank, South Indian Bank, Karur Vysya Bank, RBL Bank, Karnataka Bank, Bandhan Bank, Tamilnad Mercantile Bank, City Union Bank, Lakshmi Vilas Bank, DCB Bank, CSB Bank, Dhanlaxmi Bank, Nainital Bank.

Source of list – Wiki Link

Which are the safe banks in India amongst the above-listed ones?

If one was to pick a few amongst these for a list of best, safe banks in India (2021) then its best to pick with larger ones like State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda, Canara Bank, Bank of India, etc. amongst the PSU banks and HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Indusind Bank, etc. amongst the private banks.

Please note that I am not saying that rest of the other banks are bad or not worth banking with. It’s just that few of the above ones are very large and important banks and the government will go to any lengths to ensure that they don’t go bad. Risks are still there. But lesser in these banks.

By the way, since we are talking about deposits, you should also know that the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an RBI subsidiary, insures your deposits with all commercial and cooperative banks. Yes. But not all of your deposits. The DICGC will compensate you only up to Rs 5 lakh for all your fixed deposits and savings in various accounts in any one bank. That’s it. This limit was recently enhanced in 2020 Budget from the earlier deposit insurance limit was just Rs 1 lac. You can read more about deposit insurance on DICGC’s website using this link.

But what to do if you have to park more than Rs 5 lakh in banks? Few more points to consider:

  • If you have a large enough FD portfolio, try to spread your fixed deposits across a few banks. Major chunks in the safe ones. And some in others which most probably offer higher FD interest rates than bigger banks. It is like spreading your bets plain and simple.
  • You can also spread money across family members to use the Rs 5 lakh insurance angle for each one instead of just one person.
  • What about corporate deposits from NBFCs? They are risky and they do offer quite high rates which no doubt can be tempting. But that doesn’t mean that you should avoid all company FDs. Just beware of unusually high-interest rates that some company FDs may offer. Study the company’s background and credit rating. And simply stick with most reputed and trustworthy names having AAA ratings. Also limit your exposure to a small part of your FD portfolio. Don’t be too adventurously greedy to generate high returns from FD. If you want high risk-taking and high returns, go and invest in equity markets.
  • If you understand how to pick debt funds properly, then even debt funds can be a good option for many as a sort of replacement of fixed deposits. But debt funds are not risk-free. Also make sure that you do understand bank FD interest taxation and how debt funds win in this aspect as debt fund taxation is very different. If you want to which are the good mutual funds to invest in, then consider subscribing to premium Stable Model Mutual Funds service.

Note – If you are looking for monthly interest from fixed deposits, then you may like to read monthly interest Rs 1 crore fixed deposit OR monthly interest Rs 2 crore fixed deposit OR monthly interest Rs 50 lakh fixed deposit.

So hopefully, this post would have given you some idea about which are safe banks in India.

PS – Please do note that I am not saying that all other banks are bad (Nor trying to create any panic via this article). Just trying to highlight the various points one should consider while picking safe banks in India (2020-21).

1 comment

  1. What will happen if the bank with our FD goes bankrupt ?
    Case-1 :
    Person X has FD of 5L in AXIS + 5L in IDBI + 5L in Canara bank
    and hypothetically all bank goes bankrupt.
    So as per law will the FD of person X will be safe in all three accounts
    or
    Since they are of same person , only one fd of 5L will be saved.

    Case-2:
    Same as case-1 , just that he has amount in savings account rather than having FD

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