Is our Money in the ICICI Bank Safe?



TOKYO - SEPTEMBER 16:  A man walks past the sign of Lehman Brothers Holdings at the Tokyo branch of Lehman Brothers Holdings on September 16, 2008 in Tokyo, Japan. The Japanese market has plummeted following the collapse of Lehman Brothers Holdings Inc, the fourth-largest US investment bank.Image by Getty Images via DaylifeImage by Getty Images via DaylifeImage by Getty Images via Daylife Rumors. Rumors. Till now I have received more than 20 calls from my friends and Colleagues just to know about the safety of their money parked in ICICI Bank. Fall of Lehman Brothers triggered these rumors. "ICICI, Axis Bank and public sector Punjab National Bank have admitted to trades with the defunct US bank in the overseas market — recovery of this money may now have to be through the bankruptcy procedure in the US."
In a press statement on Tuesday, ICICI Bank joint managing director and chief financial officer Chanda Kochhar confirmed that the bank’s UK arm unit holds 57 million euros ($81.3 million) in senior bonds of Lehman Brothers. However, she also said that it was too miniscule to hurt the bank in any way. “(It) constitutes less than 1% of ICICI Bank UK PLC’s total assets and less than 0.1% of the consolidated total assets of the ICICI Group. ICICI Bank UK PLC already holds a provision of about $12 million against investment in these bonds,” Kochhar said. The bank is estimating a 50% recovery from the Lehman bonds. “The additional provision required would be about $28 million,” ICICI Bank said. The recent 100 basis points widening in spreads on investments globally may result in a loss of about $175 million on ICICI Bank’s holdings in bonds other than Lehman’s.

In view of above statements, what we should do?
  1. If you are a customer of ICICI Bank, don't worry about the safety of your money parked in SB or FD of ICICI Bank. It is safe. There is absolutely no default risk. If you want, you may park some of your funds in the Nationalised banks. ( Up to 1lakh/customer/bank is insured).
  2. If you are a shareholder of the ICICI Bank, I advice you to sell the shares or reduce the exposure. This year is not going to be good for ICICI bank shares. I think the share price may tank to less than Rs300 (today's recovery is due to short covering).
Also Read : The deposit insurance system in India - RBI 


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6 comments:

Anonymous said...

thanks for this info, Does anyone has any idea for NRE savings accounts? How much is insured for those accounts?

R. John Christy said...

Dear Sir,
Thanks for your comments. Please visit my latest post http://www.investchips.com/2008/09/deposit-insurance-system-in-india-rbi.html for answers to your query. "Any amount due on account of deposit received outside India" is not insured.

Anonymous said...

People say that Fixed deposits are safe even if the bank goes bankrupt. Is it correct?

R. John Christy said...

In India, a sum of Rs.1 lakh/bank/customer is insured. If a commercial bank go bankrupt , you will be compensated at the maximum of Rs. 1 lakhs per bank ( Whether it is in SB or FD A/c -)by RBI. For details please Visit
http://www.investchips.com/2008/09/deposit-insurance-system-in-india-rbi.html

Atul said...

I dont know where to put my savings now..Its too scary..No bank is safe...1 lakh isnurance is nothing man..What if I have 20 lakh rupees. Do i need to open account in 20 banks..?

R. John Christy said...

Dear Mr.Atul,
Thanks for your comments. Please don't act on any rumors. All Indian banks are safe and sound. If you wish, you can park part of your funds in Indian Post Office Scheme. Central Govt. gives 100% guarantee for your money in the Post Office. You can also deposit money in your family member's name to avail 1lakh/customer/bank insurance facility. Remember when Global Trust Bank went bust, none of the customers affected. It was merged into Oriental Bank of Commerce. Only the shareholders suffered. This insurance is practically needed only for customers of Co-Operative banks which are not stable.

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