Is your deposit in the bank safe?
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Troubled private-sector lender Yes Bank on Wednesday announced the appointment of Niranjan Banodkar as Chief Financial Officer (CFO) with effect from January 1 2021.
The bank, which is currently being managed by the RBI and is under moratorium, had been seeing a steady decline due to a dramatic rise in Non-Performing Assets and a large amount of faulty loans for which it was unable to raise capital.
Failures of governance at Yes Bank have been held up as a major cause for the financial instability of the lender and the RBI has initiated a restructuring scheme intended to protect both assets of customers and lower employees welfare. As of now, the moratorium ensures that customers of Yes Bank can only withdraw a maximum of ₹50,000 except in cases of emergencies.
The failure of private lenders like Yes Bank and Laxmi Vilas Bank has led to fear amongst customers as to the future of their assets.
It is worth noting that most deposits up to 5 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DIGC) under the RBI. The 5 lakh range is an extension of previous 1 lakh range which was announced by finance minister Nirmala Sitharaman and will come into effect from April 2021.
However the onus is on the consumer to also take notice of the bank's stability, including tracking news and investigating their history and shareholders. While big government banks and big private banks can be seen as more reliable than smaller lenders, this statistic is not always reliable.
The risk is also higher for those with high-interest investments and for those whose assets are concentrated in a single bank. This is particularly true for the elderly, who rely on interest generated by deposits and who would benefit more from shifting a portion of their assets to government-backed schemes such as the Senior Citizen Savings Scheme.
High returns also incur higher risks, so for consumers, it may be better to diversify their holdings across multiple stable banks than to limit their exposure to one due to returns.