Since the Icelandic collapse, many are questioning other foreign banks with lots of UK savers’ money. One of the big subjects in the Forum and in my mailbag is the Indian Bank ICICI. So I thought it would be worth jotting down a few brief notes.
ICICI was a best buy for a long time, so I suspect it’s amassed a large number of savers in the UK. In fact, its fixed rate savings account is still in the best buy tables. As you know, my policy is to choose best buys based on the rate and product, rather than with regards to overall solvency.
Let me run through the situation, looking at the protection levels, what happens if it goes bust, and how likely that is to happen.
How protected is it?
To operate in the UK, non-European banks must by law have FULLY registered UK subsidiaries. That means if it goes bust the £50,000 per person per financial institution protection from the Financial Services Compensation Scheme (FSCS) will apply just as much for ICICI as for Barclays, NatWest or any other UK bank.
So if you have £50,000 or less in it, your cash is safe (though of course, if it did go bust it’d be an administrative hassle and you wouldn’t have access for a few months). Anything over £50,000 ISN’T protected, and as I say with all institutions, in that case you’re best to spread savings into other accounts (see the Safe Saving guide for a full explanation and how this interrelates with other banks).
What would happen if it went bust?
The FSCS compensation is actually the secondary level of protection; after the crisis of the last year the government has shown its intent (though it hasn’t promised) to protect ALL savers cash. This has happened in two ways:
- OPTION 1: It simply shifted the savings operation/nationalised it.
Northern Rock was nationalised totally. Yet with Bradford & Bingley and Kaupthing Edge, the government simply arranged/forced the shifting of the savings operation over to a new big parent bank (Abbey and ING respectively).
While that can mean a few minor operational issues for the week of transition, to all intents and purposes your accounts and savings continue as normal as does access to the cash.
- OPTION 2: It paid out in full not just £50,000.
In the case of Icesave, as it was not a fully regulated UK bank (it operated the passport exemption scheme), some of the protection came from Iceland. And it seems that meant the UK government couldn’t simply shift the savings to another bank. Instead it simply promised to protect all savings (not just up to £50,000).
As ICICI is a fully regulated UK bank, if it went bust the government should be able to go for OPTION 1; there’s no direct need for OPTION 2.
Yet of course, these are all ad hoc situations, and another bank would need to be willing to take it on, so there’s never a guarantee that what happened in the past will happen in the future.
How likely is it to go bust?
International bank (or nations) solvency simply isn’t my expertise, and it’s my view that you’re far better to rely on the protection situation than to try and second guess solvency issues.
After all, with some of the Wall Street bastions like Goldman Sachs & Merrill Lynch in trouble, as well as big British Banks like RBS/NatWest and Lloyds needing government rescues, frankly this can happen anywhere.
However I’ve compiled a list of further reading (feel free to add more in the discussion link at the end of this)
- Business Week: This is a good summary of the situation in India and ICIC in general. Link: Business Week
- Fitch Ratings: This is an agency that rates the creditworthiness of banks. The rating should be looked at as a cross between the actual rating and its stability (a rapidly deteriorating rating is a bad sign). Link: Fitch Rating
- ICICI credit article: This is a useful recent guide to ICICI’s credit ratings Link: NDTV article
Update: 11am, 31 October 2008
I wanted to keep you updated with further developments and news stories related to ICICI…
- This is Money: The Daily Mail’s money site is reviewing banking solvency, and on 29 October announced that ICICI has been removed from its best buy tables. Link: This is money
- CNN: The US news site reviews ICICI’s latest fall in profits Link: CNN News
Update: 20 April 2009
We’ve been monitoring the situation with ICICI since this blog was originally written and updated, and a few developments have led us to modify our warnings about its stability. The Daily Mail’s money site, This is Money, has added ICICI back into its best buy tables, plus various stability indicators place ICICI in similar groupings to its fully-UK peers.
Remember, saving more than £50,000 in any bank constitutes a risk, but anything under that is 100% guaranteed by the UK’s compensation scheme