IndusInd Bank stock: Are your bank deposits, FDs secure despite price fluctuations at stock market?

IndusInd Bank has recently been in the spotlight after its stock fell to a 52-week low on March 11, 2025, (Tuesday) attributed to an accounting irregularities related to forex derivative transactions. Although the stock saw a slight recovery the following day (Wednesday - March 12), questions about the security of fixed deposits (FDs) have surfaced among customers. 

Despite these fluctuations, those holding deposits in IndusInd Bank can take solace in knowing that their funds are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The subsidiary of the Reserve Bank of India (RBI) ensures a maximum coverage of Rs 5 lakh for deposits held in a bank in the event of bank failure, bankruptcy, or license cancellation.

Protecting your savings

The DICGC insurance applies to a variety of banks, including commercial banks like SBI and IndusInd, as well as state, central, and urban cooperative banks. It is essential for depositors to understand that this insurance coverage includes savings, fixed, current, and recurring deposit accounts, but does not extend to primary cooperative societies. 

For instance, if a depositor holds a fixed deposit of Rs 4 lakh and earns Rs 1.5 lakh in interest, the insurance will cover only up to Rs 5 lakh. The remaining Rs 50,000 interest would not be insured. This scenario highlights the importance of spreading deposits across different banks to mitigate risk effectively.

Insurance coverage cap 

The demand for increasing the insurance coverage cap has been a topic of discussion, especially following crises such as the New India Co-operative Bank incident. The insurance limit was raised from Rs 1 lakh to Rs 5 lakh in 2020, addressing earlier concerns but not fully quelling rising demands for further increments. Finance Minister Nirmala Sitharaman addressed this matter in Parliament, stating, "DICGC may propose to the government to increase the deposit insurance limit, keeping in mind its financial position and the interests of the banking system of the country." This statement leaves room for potential future increases, although no formal proposal has been presented by DICGC yet. 

IndusInd Bank's challenges

IndusInd Bank, the fifth largest bank in India, recently faced a significant accounting discrepancy. In a statement to shareholders on Monday, the bank disclosed that an internal review of forex derivative transactions revealed an accounting error totaling Rs 1,577 crore (post-tax), equivalent to approximately 2.35% of the bank’s net worth as of December 2024.

This news, coupled with the unexpected delay in the reappointment of managing director Sumant Kathpalia, has resulted in a decline in investor confidence. On Tuesday, IndusInd Bank shares plummeted by 27.17% on the BSE, marking the largest one-day drop since the bank's listing. The stock closed at Rs 655.95 per share, reaching its lowest point since November 2020.

Market analysts point out that while IndusInd Bank's recent challenges may cause some investor anxiety, the overall structure and security provided by DICGC remain robust protections for depositors. Comparatively, rivals like ICICI and other commercial banks also adhere to the same DICGC insurance framework, ensuring a uniform level of deposit protection across the industry. This system allows depositors to maintain confidence in the safety of their funds, despite market volatility. Thus, it is crucial for depositors to be aware that their investments in fixed deposits are insulated from the direct repercussions of such financial mishaps.

Despite the market jitters, data from the industry shows that the Indian banking sector remains stable, supported by regulatory measures and robust insurance frameworks. Sector growth rates continue to align with global standards, and while individual banks like IndusInd may experience fluctuations, the safety of depositor funds is not compromised. The DICGC's role in safeguarding deposits up to Rs 5 lakh ensures that depositors can feel secure about the security of their investments, even amidst concerns arising from stock market performance or isolated financial discrepancies.