How Safe Is Your Bank Deposit?

A look at the measures the Reserve Bank and the government have taken to keep your money safe

- Naveen Kumar

The recent crisis at the Punjab and Maharashtra Cooperative (PMC) Bank and others like it has made many people worried. Suddenly, the safety of bank deposits has become a issue. What will happen to their money if a bank goes bust?

HOW REGULATION WORKS FOR BANKS

The prudential regulatory requirement is the same for all commercial banks, including PSU banks, private banks, small finance banks and regional rural banks. They cannot lend the entire money that they have received from depositors; 4 per cent of these deposits has to be kept aside as cash reserve ratio (CRR) and 18.75 per cent as statutory liquid ratio (SLR). There is also a capital adequacy ratio, or the capital-to risk weighted assets ratio (CRAR), which is used to protect depositors (it is currently at 9 per cent). All commercial banks are subject to regular internal and external audits to guard against any major problem going undetected for long. These mechanisms are in place to help banks meet any adverse scenario.

ARE PSU BANKS SAFER THAN PRIVATE BANKS?

Traditionally, banks in India have enjoyed a high level of trust with depositors. The safety perception is generally higher for public sector banks (being “government banks”). “There is a general perception that PSU banks may stand a higher chance of being salvaged by RBI than private banks,” says Sousthav Chakrabarty, cofounder and CEO of SEBIcertified financial advisory firm, Capital Quotient. “In recent times, the RBI has drawn up a list of systemically important banks (SIBs) which are too important for the Indian economy. If such banks do fail, the RBI will step in to provide salvage options and protect deposit holders. Many of the large private banks are now part of this list.” Currently, public sector bank SBI and two private sector banks, HDFC Bank and ICICI Bank, are in the RBI’s list.