[ashokrajagopal]

Originally Posted by CarJunki

Well the ground reality is still same as of today.
Future situation based on last weeks decision may vary.
District level co-operative banks are only one part of the game.

A co-operative bank can be created by any group having 21 or more people.
In effect the Act governing co-operative societies are not changing, thus nothing prevents new swiss banks from starting.

Cooperative banks act on the basis of the Acts governing it -- this is true. Your comment mentioned it is some sort of state mechanism that keeps the KYC relaxed, which is not true at all.
The last week's RBI approval came after many years of going thru the process obviously. The large scale cooperative banks, basically those which can go bust like PMC with loan frauds are the District coop banks and the government has been actively trying to get it to be a regular bank for a long time.

[vrprabhu]

Originally Posted by SmartCat

That's the whole basis/foundation of interest rates. Higher the risk (solvency), higher the reward (interest earned). If you mess with this concept, it will have disastrous unintended consequences.

10 year G-Sec trades at ~6.50%.

Interest on 10 year deposit by SBI 6.25%.

Government of India is paying you higher rate of interest than the biggest Bank in India

Conclusion - GoI is in a bigger mess than SBI?

PS - Individuals can invest (trade) in Gilts - Government Securities - no other security is safer than this. Those with deep pockets can afford to make money through capital appreciation as well, in the long run....

Originally Posted by saket77

Your posts on the matters of finance are really enlightening and I enjoy reading them always.

Yes - me too!!

[SmartCat]

Originally Posted by vrprabhu

10 year G-Sec trades at ~6.50%. Interest on 10 year deposit by SBI 6.25%.

wow, it makes no sense to invest in 10 year SBI fixed deposit at 6.25% then. I guess nobody does that anyway.

Bonds are different from deposits, and not easily understood by many. You can break your FD anytime with almost no penalty. But when you try to exit a bond mid-way, you could end up either losing a part of capital invested or you could end up with large capital appreciation (like stock).

But when a bond is held till maturity (10 years, in this example), it behaves like a fixed deposit.

[sdp1975]

GOI 7.75% taxable bonds are a good option. There's a 7 year lock-in and no premauture exit route. Offered in cumulative and non-cumulative forms.

https://www.rbi.org.in/Scripts/Notif...d=11196&Mode=0

However, the rate may be reduced anytime. A couple of years ago it was at 8% and then brought down to 7.75%.

[rulerofsun]

Originally Posted by SmartCat

However, I don't think depositors in scheduled (mainstream) banks have ever lost money since nationalization. The last time a bank shutdown was in 1994 (Global Trust Bank). Depositors lost nothing - Govt forced Oriental Bank of Commerce to acquire GTB.

Very true. The Co-Op bank Scheme was structured for rural development but most just worked in the urban environment.

https://www.rbi.org.in/commonman/Eng...nbankdept.aspx

[Chethan B G]

One quick question: Can a depositor have an insurance externally, to cover the deposit required? If so, why is this not practiced?

Sorry if it is silly or out of topic.

[Vipin Kumar]

Originally Posted by SmartCat

However, I don't think depositors in scheduled (mainstream) banks have ever lost money since nationalization. The last time a bank shutdown was in 1994 (Global Trust Bank). Depositors lost nothing - Govt forced Oriental Bank of Commerce to acquire GTB.

Not in 1994. It was in 2004, I suppose. Dr. Manmohan Singh as PM himself had intervened to ensure the forced merger of GTB with the Oriental Bank of Commerce. In fact, GTB was not given a choice in this regard.

However, for a few days, there was panic as the people were unable to withdraw their money/deposits. Things were quite uncertain for them for week or two.

[Sebring]

If you are getting 5% return on FD, and 10% is TDS, will you have money left to cover your principal amount? Gold is best investment, and has always been. My new realisation.

Originally Posted by Chethan B G

One quick question: Can a depositor have an insurance externally, to cover the deposit required? If so, why is this not practiced?

[AirbusCapt]

RBI is the culprit here, in terms of regulatory oversight or rather the lack of it. As per their own norms, they are supposed to conduct bi annual inspections of all scheduled and cooperative banks. RBI officers spend about two weeks at minimum at the branch, headquarters pouring through all records, audit trails etc before handing out a clean bill of health. Looks like such things were not done in case of PMC bank. I am sure more skeletons may pop out of the he RBI closet once CBI investigation picks up pace.

[Lobogris]

Originally Posted by Sebring

If you are getting 5% return on FD, and 10% is TDS, will you have money left to cover your principal amount? Gold is best investment, and has always been. My new realisation.

The 10% TDS is on the interest income of 5%. not on the principal amount. Currently interest rates are around 7 to 8% though.

[Samurai]

Originally Posted by srini1785

Drawing parallels , FDIC ( Federal Deposit insurance corporation ) of the US guarantees complete refunds in the event of grand larceny, fire , floods etc. I don't know if it covers willful fraud, which is the case with PMC .

Why would fire, flood, etc., make a bank fail? Anyway, there is no full refund even from FDIC. It is limited to $250,000 per account type.

https://www.fdic.gov/deposit/deposit...e-english.html

[Sebring]

He is asking if principal amount can be covered with insurance. That cover will cost, right?

Originally Posted by Lobogris

The 10% TDS is on the interest income of 5%. not on the principal amount. Currently interest rates are around 7 to 8% though.

[srini1785]

Originally Posted by Samurai

Why would fire, flood, etc., make a bank fail?

Not the money in your account but the valuables in locker. Agreed, It won't result in bank failure.

Originally Posted by Samurai

Anyway, there is no full refund even from FDIC. It is limited to $250,000 per account type.

Standard is 250,000 USD but can be extended for higher premiums.

[meerkat]

Originally Posted by Samurai

... there is no full refund even from FDIC. It is limited to $250,000 per account type.

Originally Posted by srini1785

Standard is 250,000 USD but can be extended for higher premiums.

Not to forget about the important issue of the relative purchasing power of the two currencies! With $250,000 a family of four can survive reasonably well (by Indian standards) in the US for at least a decade (I'm not talking about any luxury, or health care and such, ... just basic survival). With Rs. 1,00,000 how long or how well will such a family survive in India?
.

[amitk26]

Originally Posted by meerkat

Not to forget about the important issue of the relative purchasing power of the two currencies! With $250,000 a family of four can survive reasonably well (by Indian standards) in the US for at least a decade (I'm not talking about any luxury, or health care and such, ... just basic survival). With Rs. 1,00,000 how long or how well will such a family survive in India?
.

I just hope FDRI 2017 bill which as junked due to stiff opposition in last parliament is brought again and sees light of the day , I wrote about it on this thread few posts back.

one lakh might have been a big amount in 80s but not now, deposit insurance amounts should be inflation linked.