Be discerning, Crisil tells bank depositholders

Rating agency Crisil today stated that customers ought not to see all banks in the same light.

"All banks are not equal as the recent crises at Global Trust Bank (GTB) indicates," said Ritesh Maheshwari, head, financial sector ratings, Crisil.

The proposed shotgun merger of GTB with Oriental Bank of Commerce (OBC) has brought to light the fact that all banks are not necessarily risk-free, and that the bank depositors need to be more discerning.

"Depositors need to differentiate between banks based on their financial health in terms of asset portfolio and capital adequacy," said Maheshwari.

A Crisil study released today points out that all types of banks in India be they public, private, foreign or cooperative, have faced financial distress.

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

The depositors of co-operative banks, however, have borne higher losses as DICGC deposit insurance is the only protection available to them, stated Crisil.

Maheshwari identified that depositors could verify the financial strength of their bank based on the credit rating. The minimum investment grade would give depositors some level of comfort in an industry facing competitive pressures, which could force down marginal players, he added.

"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", stated Crisil.