As the global banking giants head towards their worst time ever, Indian customers are worried about their money parked with them in IndiaMitali, a call-centre executive, still remembers how her friends persuaded her to change her decision when she was planning to park some of her hard earned money in a safe investment avenue like fixed deposits. They argued against her decision to opt for a public sector bank, talking about the foreign banks’ service qualities, global reach, high standards et al. And today, when she is worried about the safety of her money, all those so-called advisors have ran out of words. But then, Mitali is not just one the only one going through this confusion, there are many more like her who are currently going through it. The basic question that’s in their mind is whether their money is safe or not in the hands of these glitzy, glamorous foreign banks?
Everyone must be remembering the whole frenzy episode attached to the adverse news that hit ICICI Bank in September last year. Almost all the ATMs of the bank were drained out in one day, only because there was a rumour which said that the bank had a major exposure in Lehman Brothers, the giant US investment bank that collapsed last year. If a link to a collapsed bank can create such panic in the minds of millions of the customers of India’s largest private bank, one can easily understand feelings of those whose money is placed in banks like CitiBank, which is currently undergoing the worst phase and struggling to survive. Explaining the impact of global turmoil on Indian units of the global banks, Karthik Srinivasan, Co-Head, Financial Sector Ratings, ICRA said, “It would definitely affect the foreign banks operating in India as in many cases these units are more like branches of their global counterparts, not standalone entities. So they cannot keep themselves away from the hit taken by the original company. However, at the moment it’s too difficult to say to what extent they suffer.”
Apart from the current financial health of the other factor that aggravates this skepticism is the guarantee cover for deposits made in India, which is pegged at just Rs.1,00,000 compared to 50,000 Pounds in the UK and $1,00,000 in the US. Interestingly, the DICGC (Deposit Insurance and Credit Guarantee Corporation) cover has not been revised since 1993 unlike other major countries who have already taken the initiative. Considering the global scenario and the domestic norms, it’s definitely a difficult time for Indian depositors to have faith on the foreign banks. So much so that in a recently conducted 4Ps B&M and ICMR Survey on Indian banking industry only 17% voted for foreign banks when they were asked their preferred banks.
However, before jumping on to any conclusion, consumers must actually understand that the situation is also dependent on the host governments’ attitude towards respective foreign banks. For example, Barclays can be a safer option today as compared to Citibank for the fact that the British Government is reassuring its banks a big way. The corporate status of the bank is also a major decisive factor for the banks at the moment as those banks, which are working as a subsidiary of a foreign bank are relatively safer than those which just have their branches operating in India. Thus for the confused bunch of people like Mitali, it’s actually the time to first know their banks. So who is ready to prepare the KYB norms?
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Source :
IIPM Editorial, 2009
An Initiative of
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