PMC Bank crisis aftermath: Depositors' confidence in banks takes a big knock
Customers across other financial entities, be it public, private, cooperative as well as non-bank categories are now questioning the stability of their banks.
The crisis at Punjab and Maharashtra Cooperative (PMC) Bank has dealt a body blow to depositors' trust.
It has been over two months since the Reserve Bank of India (RBI) restricted cash withdrawals for PMC Bank customers, who are under dire stress. Customers of Dewan Housing Finance Corp (DHFL) have also not been able to access their fixed deposits and are awaiting some relief.
Customers across other financial entities, be it public, private, cooperative as well as non-bank categories are now questioning the stability of their banks. Retirees being the most concerned as the events have left them worrying about their life's savings.
"We are seeing a lot of deposit inflow from customers who are retired and had all their savings with a cooperative bank or a non- bank. They are now opting for safety over a few percentage points of higher deposit rates," said a senior official of State Bank of India, the country's largest lender.
Typically, cooperative banks and deposit taking non-banking finance companies (NBFCs) offer higher interest rates on savings and fixed-term deposit accounts compared to large commercial banks. For instance, while commercial banks pay around 6.25-6.5 percent for one-year term deposits, cooperative banks are offering around 7.5-8 percent on the similar maturity.
Other than retirees, salaried individuals who have to maintain accounts with one particular lender due to corporate arrangement, are also opening accounts with other banks they feel are safe.
"After the PMC Bank incident, one thing is clear that its not safe to keep all your eggs in the same basket. The deposit insurance is also only Rs 1 lakh as of now," said an IT employee who holds a salary account with a private lender.
In another instance, shareholders of a medium-sized pharmceutical company demanded the management to shift the company's accounts from a cooperative bank to a larger commercial bank. The issue took centre stage at the company's annual general meeting, with the management agreeing to look into carrying out the stakeholders' wishes.
The RBI has increased cash withdrawal limit for PMC Bank customers to Rs 40,000 in four tranches since September and is working with the government to bring about changes in the way cooperative banks are regulated. However, in two months much has changed for its customers.
For instance, a senior citizen whose tailoring business relied upon her account with the PMC Bank, saw it crumbling down to pieces due to non-availability of operational funds and letter of guarantee. As a result, she lost her clients as well as employees who found work elsewhere during the busy festive and wedding season.
"How do you expect an old widow to stand up on her feet again?" she said, fighting back tears. Her efforts to immediately move her business to a large private bank also hit a roadblock as they demanded a No Objection Certificate (NOC) against an overdraft facility with her previous lender that is taking too long to process. She also had fixed deposits worth Rs 20 lakh with PMC Bank which are not accessible at the moment.
While authorities are working towards ending the depositors' suffering as soon as possible, it will take longer to reinstate the confidence and trust customers had in banks. Improved supervision to keep a check on frauds and hike in the deposit insurance limits are expected to be the first few steps in the right direction.
https://www.moneycontrol.com/news/b...dence-in-banks-takes-a-big-knock-4650821.html
Customers across other financial entities, be it public, private, cooperative as well as non-bank categories are now questioning the stability of their banks.
The crisis at Punjab and Maharashtra Cooperative (PMC) Bank has dealt a body blow to depositors' trust.
It has been over two months since the Reserve Bank of India (RBI) restricted cash withdrawals for PMC Bank customers, who are under dire stress. Customers of Dewan Housing Finance Corp (DHFL) have also not been able to access their fixed deposits and are awaiting some relief.
Customers across other financial entities, be it public, private, cooperative as well as non-bank categories are now questioning the stability of their banks. Retirees being the most concerned as the events have left them worrying about their life's savings.
"We are seeing a lot of deposit inflow from customers who are retired and had all their savings with a cooperative bank or a non- bank. They are now opting for safety over a few percentage points of higher deposit rates," said a senior official of State Bank of India, the country's largest lender.
Typically, cooperative banks and deposit taking non-banking finance companies (NBFCs) offer higher interest rates on savings and fixed-term deposit accounts compared to large commercial banks. For instance, while commercial banks pay around 6.25-6.5 percent for one-year term deposits, cooperative banks are offering around 7.5-8 percent on the similar maturity.
Other than retirees, salaried individuals who have to maintain accounts with one particular lender due to corporate arrangement, are also opening accounts with other banks they feel are safe.
"After the PMC Bank incident, one thing is clear that its not safe to keep all your eggs in the same basket. The deposit insurance is also only Rs 1 lakh as of now," said an IT employee who holds a salary account with a private lender.
In another instance, shareholders of a medium-sized pharmceutical company demanded the management to shift the company's accounts from a cooperative bank to a larger commercial bank. The issue took centre stage at the company's annual general meeting, with the management agreeing to look into carrying out the stakeholders' wishes.
The RBI has increased cash withdrawal limit for PMC Bank customers to Rs 40,000 in four tranches since September and is working with the government to bring about changes in the way cooperative banks are regulated. However, in two months much has changed for its customers.
For instance, a senior citizen whose tailoring business relied upon her account with the PMC Bank, saw it crumbling down to pieces due to non-availability of operational funds and letter of guarantee. As a result, she lost her clients as well as employees who found work elsewhere during the busy festive and wedding season.
"How do you expect an old widow to stand up on her feet again?" she said, fighting back tears. Her efforts to immediately move her business to a large private bank also hit a roadblock as they demanded a No Objection Certificate (NOC) against an overdraft facility with her previous lender that is taking too long to process. She also had fixed deposits worth Rs 20 lakh with PMC Bank which are not accessible at the moment.
While authorities are working towards ending the depositors' suffering as soon as possible, it will take longer to reinstate the confidence and trust customers had in banks. Improved supervision to keep a check on frauds and hike in the deposit insurance limits are expected to be the first few steps in the right direction.
https://www.moneycontrol.com/news/b...dence-in-banks-takes-a-big-knock-4650821.html
wohi tho, mkt will do its own, forecasters will say their own stuff.
Airtel too will increase at same time. That's why demand in both stocks.
