Many people in India believe banks are the safest place to keep money. However, some recent banking failures like PMC Bank and Yes Bank have created fear in the minds of account holders. People are now asking – Is our money safe in banks? And if a bank fails, how much money do we get back?
Let’s understand the real situation of Indian banks, the role of RBI, and what happens to your savings if a bank shuts down.
Recent Bank Failures That Shocked Customers
In the last few years, some well-known and cooperative banks have shocked the public with their poor financial condition. Here are some names:
- PMC Bank (Punjab and Maharashtra Cooperative Bank)
- Yes Bank
- IndusInd Bank
- New India Cooperative Bank
The Reserve Bank of India (RBI) took strict action in these cases. It appointed administrators, removed board members, and even helped restructure banks like Yes Bank and IndusInd Bank. The government and RBI together worked to save depositors’ money. But still, people faced delays and limits on withdrawals during that period.
These incidents showed that even private and cooperative banks can face financial stress due to bad loans, fraud, or mismanagement.
What Does RBI Do to Protect Your Money?
The RBI acts as the supervisor of all scheduled banks in India. Its job is to make sure banks run safely and follow all rules. When the RBI sees trouble in a bank, it can:
- Stop withdrawals temporarily
- Appoint an administrator
- Remove the board of directors
- Help restructure or merge the bank
- Investigate financial frauds
However, even with RBI’s action, if a bank becomes completely bankrupt, it may still be unable to return full money to all its customers.
How Much Money Do You Get If a Bank Sinks?
This is the most critical question. People deposit their life savings in banks. But if that bank fails, how much can they recover?
According to the current rules of RBI and Deposit Insurance and Credit Guarantee Corporation (DICGC):
Every account holder is insured up to Rs. 5 lakh, including principal and interest.
Let’s take an example:
- You will get the full amount if you have Rs. 2 lakh in savings.
- If you have Rs. 10 lakh in a fixed deposit – you will get only Rs. 5 lakh.
This limit is per depositor per bank. If you have multiple accounts in the same bank, the Rs. 5 lakh limit still applies.
So even if you saved Rs. 20 lakh in a bank, you may lose Rs. 15 lakh if the bank shuts down permanently.
Is There Any Plan to Increase the Rs. 5 Lakh Limit?
After the PMC Bank case, many people requested the government to raise this insurance limit. Financial Services Secretary M. Nagaraju also confirmed that the government is considering increasing it.
Though nothing has been officially announced yet, there is hope that deposit insurance may go beyond Rs. 5 lakh in future.
This will give more confidence to ordinary people who save significant amounts in banks.
Which Banks Are Safest According to RBI?
Not all banks are unsafe. RBI regularly monitors and categorises banks based on financial strength, branch network, business volume, and risk management.
Here are the safest banks in India according to banking experts and RBI reports:
✅ Public Sector Bank
- State Bank of India (SBI)
- India’s largest bank
- Over 22,000 branches in India and abroad
- Strong government backing
✅ Private Sector Banks
- HDFC Bank
- Known for good customer service and clean financial record
- ICICI Bank
- Significant presence and trusted management
These banks have substantial reserves, a large customer base, and strict risk controls. The RBI considers them less risky and better managed than smaller private or cooperative banks.
Why Do Some Banks Fail?
Most banks that fail face one or more of these problems:
- Bad loans – Loans given without proper checks become NPAs (non-performing assets).
- Fraud or scams – Internal fraud or mismanagement by senior officers.
- Low capital – Banks don’t keep enough reserves to handle sudden losses.
- Poor governance – Lack of internal control and monitoring.
In PMC Bank’s case, huge loans were given to a real estate firm without informing RBI or the auditors. When this came out, it was too late. Similar mismanagement has been seen in other cooperative banks, too.
Cooperative Banks: Should You Be Extra Careful?
Yes. Cooperative banks work under dual control – both RBI and the state registrar. These banks are small, have limited capital, and lack strong technology or fraud checks.
Recent examples like PMC Bank and New India Cooperative Bank show how unsafe such banks can become.
While not all cooperative banks are bad, checking the bank’s financial reports, RBI audits, and history before depositing large sums is better.
What Can You Do to Keep Your Money Safe?
To avoid risk, you can follow these simple tips:
- Keep less than Rs. 5 lakh in one bank – Spread your money across different banks.
- Prefer large, well-managed banks – SBI, HDFC, and ICICI are considered safer.
- Track bank ratings – Check credit ratings from agencies like CRISIL or ICRA.
- Avoid long-term FDs in small banks – Stay liquid or choose short durations.
- Don’t go only for high interest – Very high FD rates can be a red flag.
Will RBI Always Save Failing Banks?
Not always. RBI tries to rescue banks by arranging mergers or restructuring, but it cannot save every failing bank.
- Yes, the bank was saved because of its size and economic impact.
- PMC Bank had to wait for years before any solution came.
So, as a customer, you must also stay alert and take responsibility for your savings.
Final Thought – Your Awareness Is the Key
Banks are a safe place for money but not 100% risk-free. Knowing your bank’s health, keeping deposits within insured limits, and choosing trusted institutions can help protect your hard-earned cash.
Even if the RBI and government act in emergencies, your awareness will give you the best safety.
Sources: TV9 Hindi, Reserve Bank of India, DICGC, Department of Financial Services
