'Any bank offering 6–7% in a savings account is a red flag': CIO breaks down the real risk

If your bank is luring you with 7% savings interest or offering fat fixed deposit returns, tread carefully. That’s the warning from Gurmeet Chadha, Managing Partner and CIO at Compcircle, who says high deposit rates are a flashing red light—especially for equity investors.

“Any bank which offers 6–7% in a savings account or 1–2% more in FDs is a red flag,” Chadha posted on X. “They will have to lend at higher rates through PL [personal loans], microfinance, and other unsecured lending to maintain NIMs.”

The concern isn’t about deposit safety—Chadha clarified that scheduled commercial banks remain secure for savers—but about what these interest rates signal under the hood. “In banks and NBFCs, high deposit rates and fast credit growth is a red flag,” he added.

Some users pushed back, arguing that banks are acting more like startups—sacrificing margins to capture market share—and that RBI oversight now gives retail investors tools to assess risk. “Retail investors generally go for high interest rates. So it’s a win-win,” one commenter replied.

But the data paints a more cautious picture. Institutions offering outsized returns often face funding challenges or lack strong CASA (current and savings account) deposits. To sustain operations, they lean into riskier lending: unsecured loans, microfinance, or small business lending—segments with higher default potential.

Rising deposit costs squeeze net interest margins (NIMs), compelling lenders to chase yield. CRISIL Ratings warns this could dent NIMs by 10–20 basis points and weigh down return on assets in FY25. Meanwhile, the surge in unsecured credit has contributed to a growing share of new non-performing assets in retail portfolios.

The Reserve Bank of India has already flagged concerns around rapid unsecured credit expansion, hiking risk weights and pushing banks to hold more capital against these exposures.

Should you flee high FDs then? Not necessarily. High returns don’t always mean high risk—but investors must dig deeper. 

Check the institution’s credit rating, regulatory compliance, and lending model. “Diversification is key,” say analysts—avoid parking large sums in high-rate FDs from lesser-known names.