The Hindu Business Line : Depositors with banks beware, says Crisil

CRISIL has said depositors need to be more cautious as all banks are not necessarily risk-free, as seen in light of the recent episode with Global Trust Bank (GTB).

A recent study by the rating agency has revealed that all types of banks in the country, public, private, foreign and cooperative, have faced financial distress.

Depositors with public sector banks have not borne any losses due to the timely recapitalisation by the government, while private sector bank depositors' losses have been low as schemes of amalgamation with stronger banks and Deposit Insurance and Credit Guarantee Corporation (DICGC) deposit insurance cover have largely protected their interest.

The depositors of cooperative banks, however, have borne higher losses as DICGC deposit insurance is the only protection available to them.

"Though some bank failures could be attributed to concentration of ownership in private hands, concluding that private ownership is a cause of bank failures would be over-simplifying the issue," says Mr Ritesh Maheshwari, Head (Financial Sector Ratings), Crisil Ltd. "The type of ownership per se does not make a bank weak or strong: not all private banks are weak and not all government-owned banks are strong," he adds.

The widespread use of credit ratings for bank deposits will make depositors aware of the relative safety of various banks, and alert them to incipient bank collapses. With the wider use of credit ratings in the banking system, episodes, such as GTB, would be spotted earlier by the market, resulting in minimisation of depositors' losses.

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Depositors with banks beware, says Crisil