Banking menace made to view Post office savings with safe eyes

Rajat Paul

(The writer can be reached at Rajatpaul304@gmail.com )

Post office in India has always been seen as a lucrative way of investment in India. It was initiated by Warren Hastings under the East India Company in 1688, which was later formally introduced as service under the Post Office Act of 1854, presently administrated by the Ministry of Communications. With 1,55,015 post offices, DoP has the most widely distributed network in the world. Over 150 years post offices have been a crucial backbone for communication and socio-economic development where it has successfully developed a brand for itself in reaching out to its potential customers in both urban and backward rural zones with all new schemes provided by the government, thus pushing forward the country's goal of financial inclusion.

Investment options in a post office: Here we will look into various postal savings related accounts and postal savings certificates which are known to be a better, safer, and traditionally easier option than banks. At present, the government provides 9 post office saving schemes. Some of them are as under:- a) Post Office Savings Account: It is same as accounts in a bank providing 4% interest rate annually. b) Post Office Time Deposit Account: it is similar to FD opened in banks. c) 5-Year Post Office RD Account: These are recurring deposit account that offers 5.8% interest. d) Senior Citizen Savings Scheme (SCSS): Investors above 60 years can deposit up to Rs 15 lakh over their lifetime in a Senior Citizen Savings Scheme to earn regular interest income. This has a lock-in period of 5 years. The senior citizens scheme gives 7.4%. e) Post Office Monthly Income Scheme: You can invest a maximum of Rs 4.5 lakh individually and Rs 9 lakh jointly in post office MIS scheme. It gives an interest rate of 6.6%. f) National Savings Certificate (NSC): National Savings Certificate has a lock-in period of 5 years. This will fetch 6.8% interest. g) Public Provident Fund (PPF): The popular tax, long-term savings scheme, which matures in 15 years. This will fetch 7.1%. h) Kisan Vikas Patra (KVP): The Kisan Vikas Patra (KVP) will now mature or double in value in 124 months giving an interest rate of 6.9%. i) Sukanya Samriddhi Yojana (SSY):- The popular girl child savings scheme Sukanya Samriddhi Yojana account will earn an interest rate of 7.6%. A maximum of 2 accounts is allowed for a household for two daughters individually. Once the child reaches 21 years of age, she is eligible to claim the maturity amount.

Failure in banking system over the years: Over the last decade failure of Indian banks and more NPAs without proper monitoring has formed a rethink mindset among the investors whether to keep their deposits or further look for any other safe alternative. A small highlight on these will make the investors more clear on their counterpart. As per the 21st Financial Stability Report of RBI, NPA has risen over to an all-time high of 14.7 % of total loans as of March 2021, which was 8.5% as of March 2020, making it a serious concern.

The merger of mega banks, trying to regain GDP and incur losses of NPAs in PSBs. Loss-making PSBs are merged with profitable PSBs to maintain financial stability. From 2017 to 2020 public sector banks have come down to 12 from 27 in India. In 2017 State Bank of India was merged with its associates and Bharatiya Manila Bank and later on 1st April 2019 Vijaya Bank was merged with Bank of Baroda and Dena Bank, where Dena Bank was making losses of an all-time high, the same case was with Vijaya Bank. The merger was just to save the duo from liquidation. As of 2020 PNB was merged with OBC and United Bank, Syndicate Bank with Canara Bank, Andhra Bank, and Corporation Bank into Union Bank, Allahabad Bank into Indian Bank. Further DBS bank of Singapore's unit in India has been merged with Lakhsmi Vilas Bank following later huge losses. This will have both advantages and disadvantages, like big banks will have least chance to fail, less cost in operation, building nextgen banks, less risk-taking loans thus less NPA whereas negatives are cost-cutting will lead to fewer jobs, too big to fail risks, effect of any global financial crises, weak banks may harm the healthy bank post-merger. The government is further planning to reduce the PSBs in India to five from twelve by selling their majority stake in Bank of India, Central bank of India, UCO Bank, Bank of Maharashtra, Indian Overseas Bank, Punjab and Sind Bank as of reports in mid-2020.

RBI cancelled the license of both CKP Cooperative Bank, Karad Janata Sahakari Bank Ltd of Maharashtra due to adverse financial conditions in 2020. In September, 2019, the RBI suspended the PMC Cooperative Bank for temporary operations and issuing loans after finding major financial irregularities and rule violations by offering assistance to HDIL which created hue and cry among the depositors. All India Bank Employees' Association has written a letter to RBI to intervene in the working of Kerela based Dhanlaxmi Bank, as they suspecting the bank being driven on a wrong road. Same thing happened in 2012 when the bank incurred its highest losses, made to correct track following RBI intervention.

Payment banks such as India post, Aditya Birla has incurred losses which make them a failing institution to survive, report as of end 2019. SBI wrote off bad loans of around 76,000 cr where the loans were more than 100 cr. It became public under an RTI report of 2019. IDBI Bank has faced huge losses of lakhs of crores following the NPA crisis which is later taken over by LIC of India and presently running its operations as Pvt sector bank since January 2019.

As per the RBI report of 2020, bank frauds in India have gone double to Rs 1.85 trillion in the FY 20. Bank frauds seen in giant banks seem worrisome. The scam of ICICI Bank led by Chanda Kochar trying to benefit Videocon Ltd has given a big blow-off thousands of crores, later on, Yes Bank seen in crises where its share price failed by 81% due to breach of confidentiality and norms as told by RBI. Its stressed assets increased to 54.6% (147 billion rupees) as of 2019. Big infamous frauds such as kingfisher owned by Vijay Mallya have caused damage of over 14,000 cr to Indian banks where the massive was with SBI, same in case of Nirav Modi led PNB scam where frauds were done by issuing MOUs which incurred losses of around 10,000 cr.

Why Post office is considered to be a safer option: Postal bank service was known to be an old-school service until on 1 September 2018 the India Post Payments Bank was inaugurated by Prime Minister Narendra Modi. Now why the investors' deposits with the post office are considered to be safe? - Post office savings schemes are considered to be the least risk investments options as each and every penny of the depositors are backed by a sovereign guarantee which means all these saving schemes are issued and managed by the Government of India. The post office is a part of the government and part of the sovereign, which makes the deposits safe. Whereas, public sector banks even if owned by the government, are governed by the Banking Companies Act and function like a company. The money deposited in a post office goes to the National Small Savings Fund of the Central government. Even if there is an instance of fraud, the depositors' money is assured. Now if we look at the recent bank frauds, the government will repay the depositors with an amount of Rs 1 lakh which has later increased to 5 lakh ( max ) as per the Deposit Insurance and Credit Guarantee Corporation (DICGC) norms irrespective of the amount the depositors earlier had in his account. This simply means the bank insures the depositors' amount for any future mishap under the DICGC norms of RBI to protect depositors in case a bank fails. Whereas in postal deposits, there is no concept of insurance as the money is fully secure. The investments in post office schemes, which are the products of the Union Ministry of Finance, come with a sovereign guarantee, as per the information available on the National Savings Institute, which works under the Department of Economic Affairs.

What is a sovereign guarantee in the post office?-The post office offers various types of deposit schemes for those looking to invest. These instruments are also known as small savings schemes. The USP of these schemes is their sovereign guarantee, i.e., they are backed by the central government. Some of these schemes such as NSC, SCSS, etc. also offer tax-saving benefits under section 80C of the Income-tax Act, 1961.