I recently met a 85 year old man who has all his investments in bank deposits and post office deposits. This is a good portfolio – and he has about Rs. 12 lakhs. As his income is below taxable level he does not pay Income tax, nor does he file his IT return.

He had Rs. 400,000 and he had to invest in bank fixed deposits. To avoid IT (and reduce risk, his language, not mine) he had kept it as 8 FDs of Rs. 50k each – a few pay quarterly and one or 2 pay interest annually. So far so good, no hassles.

All the deposits were in a single name and he had made his son the nominee – he is a widower – so this was also fair and logical. Also some of the post office deposits (senior citizen scheme) he could not make his son the joint owner, so the son is a nominee and not a joint holder.

He is now going into a old age home in a different city – so the son wanted to operate the account – and the mess came to light.

3 FD forms are not traceable. One bank had not ISSUED the FDR even though the FD was made about 2 months ago. 2 banks had made him open a savings bank account just to credit the Quarterly interest.

He now had 5 savings bank account, 12 banks to deal with, multiple FDs where the interest had to be collected (obviously it would go back from the ‘address on account’) – and the son was staying in a different city.

Out of the 12 banks he had to deal with, 5 were banks where I would not leave a rupee! Co-operative banks based in Mumbai and its suburbs – and nobody had a clue about the quality of balance sheets.

The son was exasperated – he had to type/ print so many letters, explain what had happened, apply for PIN numbers, ATM cards, give a few dozens of photographs, PAN card photocopies, …..the clerical work was just astounding.

The most important thing was he told me “THERE IS NO RISK IN KEEPING MONEY IN ANY BANK – I have always been protected”.

This comes from the fact that whenever he has kept money in an organisation with the name ‘bank’ he has been protected. This man had kept money in GTB – Global Trust Bank. Even in this bank the shareholders lost ALL their money, but the deposit holders were protected.

If you see the RBI stance – they have protected your FD immaterial of which bank your money was lying in. Bank of Rajasthan – became part of ICICI.

So the general feeling is ‘bank FDs are risk free’ – and the risks are not priced. So if a SBI pays 8%p.a. interest BUT a Suku Bank pays 11%p.a. RBI DOES NOT SEE THE PRICING DIFFERENCE AS RISK….

If we do not let banks fail – thus hurting people, they will continue to chase rainbows of ‘risk adjusted returns’ – simply because risk is zero in debt!!

Who was asking why Indians do not invest in equities? Simple debt returns are superb – esp with risk at zero 🙂

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. In the present situation where stock markets world over are being massacred,with the world facing a recession and catastrophe with the impending euro blow out and formidable American debt, where the only solution these economic think tanks have is to print more money and cause inflation, I think I can’t pity poor Indians if they keep all their money in bank FDs. Like you said, it is safe and risk free. Atleast for the next three years.
    Imagine a lower middle class man with single income and dependents including his children and parents wants to put his money in stock markets now! Risk is good when you have plenty.

  2. RBI should force all branches to prominently state on a notice board, how much money of a person is insured in the bank. To my knowledge, it is Rs. 1lakh per account for a savings account. I do not know what is the limit for FDs.
    I fear that with the unmitigated growth of the new age private banks, we are witnessing a similar ‘too big to fail’ banks in India (as in the US).

  3. It was kind of reading my own story. Except that I came to know about it after my father’s demise. But he has kept all FD papers properly with my mom as joint holder with E or S option. It took 6 months to consolidate all his accounts to my mother’s name.
    Guess what, I invested all of them again in Bank FDs, SCSS & POMIS in my mother’s name. I do not want to play with their sentiments.

  4. i NEVER, EVER, EVER said banks are safe and risk free. Anybody feeling I said this is WRONG.

    For a 85 year old man, yes it is risk free – because INFLATION is not an issue. If it was a 40 year old, such a portfolio would be VERY RISKY.

    Having said this, for a 85 year old it makes sense to keep lots of monies in Senior Citizen Yojana – post office does not deduct TDS…

    RBI guarantees all those banks who pay the INSURANCE PREMIUM – who knows how many people pay the premium???

  5. Subra sir

    Why the 85 year old. I was in deep mess just a couple of years back. Thought everything is in control but yesterday i found that my first experiment in MF 7-8 years back is still active and not redeemed with no records with the help of the below site. lucky me 🙂

    https://www.karvymfs.com/platformservice/

    Now who can say which bank is safe or which AMC is safe.. for a 10-20 year perspective? No wonder the old rulers stored the wealth in land and Gold. Way to go in the modern world too it seems for the ultra complicated financial management techniques and practices staring at you..

  6. look I am in equities to the extent of 70% +…and had moved about 15% to debt – simply because some of the shares that I had were overvalued (my feeling). Also I have on an incremental basis invested some money in debt – BECAUSE I THOUGHT AT 12%P.A. – debt investing was lucrative.

    As int rates fall, the value of my debt portfolio will get converted to equity. TODAY ON 12 Jan also i bought some equity – which I had sold earlier. To me adding to my existing portfolio (more shares of a company I know) is not a fresh buying…

    however for a 75+ year old a portfolio with about 90% in debt is fine

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>