At the outset a “Safe Bank” is a euphemism created more by historical prejudices and myths than by anything that is based on facts or events. The safety of Banks in the true sense has rarely if at all been tested in our country. All Banks, be they Government or Private, are legally safe only up to Rs 1 Lakh savings under the provisions of the Deposit Insurance and Credit Guarantee Corporation Act 1961.
Even this provision has never been invoked post-independence. This provision is also being adversely modified by the Financial Resolution and Deposit Insurance Bill, 2017. But more about that in the conclusion of this article.
So, we do need a more holistic view of the safety of Banks that goes beyond the guarantee of our savings being available to us even if a financial calamity befalls the country or the world. Banks are safe when markets repose confidence in them or when they have abundant assets to cope with financial distress. Safety of banks may be judged by numerous parameters including professionalism of management, consistent performance, Risk management, level of automation etc.
It is a subjective judgement based on some magic combination of these parameters which every stake holder makes based on his or her knowledge and experience.
The following is a list of Banks selected with a holistic view of their credentials that make them safe. They are arranged in no particular order. Their strengths and shortcomings where significant have been highlighted.
1) HDFC Bank
If market confidence is a measure of the soundness of a Bank, then HDFC Bank takes the cake. At over Rs 11 lakh crore market capitalisation, it tops the chart, even if its assets are just a fifth of the largest Bank in the country. It stands out for its outstanding business leadership and professional managerial skills.
2) State Bank of India
With over Rs30 Trillion assets under management, it is easily the largest Bank in the country and hence also the safest bank in India. It is more than 2.5 times bigger than the runner up i.e. ICICI Bank. Being a Government Bank, it is well regulated and is manned by well trained staff. It is also somewhat a rule based bureaucratic organisation with its traditional cumbrous ways.
3) ICICI Bank
ICICI Bank was at the forefront of the post 89 digital revolution of Indian Banks. They pioneered the shift from rule bound bureaucracies to policy guided process driven banking systems. Its market capitalisation is the third next to SBI and ranks second in asset size.
4) Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank
These four private sector Banks Rank fourth to seventh in the bank market capitalisation list. Kotak Mahindra and IndusInd are backed by reputed business houses. All of them are well managed and have the potential to give the top few banks a run for their money in the times to come.
Bank of Baroda, Canara Bank, Vijaya Bank. These former private banks that had been nationalised have a largely conservative culture and are gradually expanding their all India presence. Most have a strong rural footprint at least in their local areas. These are well capitalised and enjoy the confidence of the markets.
The safety of a Bank is best Judged in the contrast. Check out these. Allahabad Bank, UBI, Corporation Bank, IDBI, UCO Bank, BOI, Central Bank of India, IOB, Oriental Bank of Commerce, Dena Bank, Bank of Maharashtra. All on the RBIs PCA list and five more waiting in the wings. How safe would you feel if you had Rs10 Lakhs FD going for the last ten years, to mature in fifteen in one of these Banks?
In a free market economy, the concept of risk free investment is just that, a concept. As the Government cedes control over the economy it also abdicates responsibility. The bail in provision of the FRDI bill is just that. It eventually passes the risk to the beneficiary of the Bank’s services i.e. the clients, amongst others. The Indian Free market is here to stay. The Indian economy is huge. Too huge for any one entity, even the Government to bear all the Risks in it. The safety of our investment is our responsibility and the Bank has only so much to do with it.