Are Cooperative Bank Deposits And Private Bank Deposits In India Safe?

We were doing a simple comparison and realized that the best fixed deposit interest rates, come from cooperative banks.

You can easily get as much as 1 per cent, or 100 basis points higher in a cooperative bank deposits.

Some of them are very local, in the sense very very local and cater to just the small area around the viscinity of the branch.

Dwelling on the statistics of cooperative banks

According to statistics, as many as 13 cooperative banks went bust in 2012-2013. Most of these cooperative banks were from Maharashtra, including names like Bhandari Cooperative Bank, Sidhartha Cooperative Bank, Solapur Nagari Audyogik Sahakari Bank and a host of others, including those from states like Orissa.

In 2008-2009, as many as 19 cooperative banks failed, though we do not have the statictics for some other years.

Does that make cooperative bank deposits and private sector banks in India safe?

The simple answer is it depends. For example, if the default is for fixed deposits of Rs 1 lakh and below, the Deposit Insurance and Credit Guarantee Corporation (DICG), which is owned by the Reserve Bank of India, will pay Rs 1 lakh.

Beyond that, if you have fixed deposits and the bank is not able to pay the same, your money is gone. So, in short, you are insured up to a maximum of Rs 1 lakh on your deposits.

However, private sector banks like HDFC Bank, ICICI Bank, Yes Bank, Kotak Mahindra, IndusInd Bank, Axis Bank are rather safe. We say this because of the large amounts that they have as cash reserve ratio with the Reserve Bank of India, which acts as a buffer.

Having said that they can go bust, but, the chances are almost negligible. The same cannot be said about cooperative banks.

Government sector banks on the other hand are the safest, as the government may end-up bailing them, as it did in the case of Unit Trust of India.

What happened in the case of cooperative banks?

In 2012-13, the DIGC had to step in and pay depositors. It paid nearly Rs 160 crore to depositors of the 13 cooperative banks which went bankrupt during April 2012 to March 2013.

Among that included deposit holders, to to Bhandari Co-op Bank Ltd, Solapur Nagari Audyogik Sahakari Bank, Siddhartha Sahakari Bank Ltd. Most of these were from the cities and towns of Maharashtra.

However, those with deposits in excess of Rs 1 lakh, in all probability lost their money, unless the bank managed to pay back.

In short, if you are putting large money in cooperative banks by way of deposits, you need to be careful. Preventions is always a better option then cure.

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