Safest Banks in India: Safeguard your Savings against risk

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Banking is an essential service that we all rely on for our financial needs. Whether it is saving, investing, borrowing, or transacting, we need a bank that can offer us convenience, security, and trust. But how do we know which bank is the safest in India? How do we ensure that our hard-earned money is in good hands and protected from any risks?

Safest Bank in India

How to Find the Safest Bank in India

In this article, we will explore some of the factors that determine the safety of a bank and how to compare different banks based on their safety ratings. We will also look at some of the safest banks in India as declared by the Reserve Bank of India (RBI), the central bank and regulator of the banking sector.

What makes a bank safe?

A bank is considered safe if it has enough capital, liquidity, and profitability to withstand any shocks or losses that may arise from its operations. A bank also needs to have good governance, risk management, and compliance practices to prevent any frauds, scams, or malpractices. A bank also needs to follow the rules and regulations set by the RBI and other authorities to ensure its stability and soundness.

Some of the indicators that can help us assess the safety of a bank are:

  • Capital adequacy ratio (CAR): This is the ratio of a bank’s capital to its risk-weighted assets. It measures how well a bank can absorb losses from its assets without becoming insolvent. The higher the CAR, the safer the bank. The RBI requires all banks to maintain a minimum CAR of 9%, but some banks may have higher requirements depending on their size and importance.
  • Asset quality: This is the quality of a bank’s loans and investments. It reflects how likely a bank is to recover its money from its borrowers and counterparties. The lower the ratio of non-performing assets (NPAs) to total assets, the better the asset quality. NPAs are loans that are overdue or unlikely to be repaid. The RBI classifies NPAs into three categories: substandard, doubtful, and loss assets.
  • Liquidity ratio: This is the ratio of a bank’s liquid assets to its total liabilities. It measures how easily a bank can meet its short-term obligations and cash demands from its customers and creditors. The higher the liquidity ratio, the more liquid the bank. The RBI requires all banks to maintain a minimum liquidity ratio of 4%, but some banks may have higher requirements depending on their liquidity profile.
  • Profitability ratio: This is the ratio of a bank’s net profit to its total income. It measures how efficiently a bank generates income from its assets and operations. The higher the profitability ratio, the more profitable the bank. The RBI does not prescribe any minimum profitability ratio for banks, but it monitors their performance and intervenes if necessary.

How to compare different banks based on their safety ratings?

One way to compare different banks based on their safety ratings is to use credible sources that provide objective and reliable information on various aspects of banking. Some of these sources are:

  • Global Finance: This is a New York-based trade publication that publishes an annual ranking of the World’s Safest Banks based on an evaluation of long-term foreign currency ratings from Moody’s, Standard & Poor’s, and Fitch Ratings. The ranking covers 500 banks from around the world and includes 14 Indian banks as of 2022.
  • Moody’s: This is a global credit rating agency that assigns ratings to banks based on their ability to repay their debt obligations and their likelihood of defaulting. The ratings range from Aaa (highest) to C (lowest) and are accompanied by outlooks (positive, stable, or negative) and modifiers (1, 2, or 3). Moody’s also publishes reports and analyses on various aspects of banking.
  • S&P: This is another global credit rating agency that assigns ratings to banks based on their creditworthiness and their probability of defaulting. The ratings range from AAA (highest) to D (lowest) and are accompanied by outlooks (positive, stable, or negative) and modifiers (+ or -). S&P also publishes reports and analyses on various aspects of banking.
  • Fitch Ratings: This is yet another global credit rating agency that assigns ratings to banks based on their financial strength and their vulnerability to defaulting. The ratings range from AAA (highest) to D (lowest) and are accompanied by outlooks (positive, stable, or negative) and modifiers (+ or -). Fitch Ratings also publishes reports and analyses on various aspects of banking.

By using these sources, we can compare different banks based on their safety ratings and choose accordingly.

How Global and Local Events Impact the Banking Sector in India

The banking sector is the backbone of any economy, as it provides essential financial services to individuals, businesses, and governments. However, the banking sector is also exposed to various risks and uncertainties that can arise from global and local events. These events can have positive or negative impacts on the banking sector, depending on their nature, magnitude, and duration.

In this article, we will discuss some of the major global and local events that have affected or can affect the banking sector in India, and how the banks have responded or can respond to them.

Global Events

Global events are those that occur outside India but have implications for the Indian economy and the banking sector. Some of the recent global events that have impacted or can impact the banking sector in India are:

The Covid-19 pandemic

  • The Covid-19 pandemic has been one of the most disruptive global events in recent history, affecting almost every aspect of human life and activity. The pandemic has caused widespread lockdowns, travel restrictions, social distancing measures, and economic slowdowns across the world, leading to reduced demand, supply chain disruptions, income losses, and increased health expenditures. The pandemic has also increased the uncertainty and volatility in the global financial markets, affecting the flows of capital, trade, and remittances.
  • The Covid-19 pandemic has had a mixed impact on the banking sector in India. On one hand, the pandemic has increased the demand for digital banking services, as customers have shifted to online platforms for their banking needs. The pandemic has also provided an opportunity for banks to innovate and offer new products and solutions to cater to the changing customer preferences and expectations. On the other hand, the pandemic has also increased the credit risk and operational risk for banks, as many borrowers have faced difficulties in repaying their loans due to loss of income or business disruption. The pandemic has also posed challenges for banks in maintaining their liquidity, capital adequacy, profitability, and asset quality.

To mitigate the impact of the pandemic on the banking sector and support the economic recovery, the Reserve Bank of India (RBI) has taken several measures, such as reducing the policy repo rate, providing liquidity support through various instruments, allowing moratoriums and restructuring of loans, relaxing prudential norms and regulatory compliance requirements, enhancing supervision and monitoring of banks’ performance and risk management practices, and encouraging banks to adopt digital technologies and strengthen their cybersecurity frameworks.

The US banking crisis

  • The US banking crisis refers to the recent failure of two large US-based banks, Silicon Valley Bank (SVB) and Signature Bank, due to their exposure to long-term bonds that lost value due to rising interest rates. The failure of these banks triggered a panic among depositors and investors, leading to a run on other banks and a sharp fall in stock prices. The US government intervened to take over SVB and Signature Bank and prevent a systemic collapse of the US banking system. The US banking crisis also had spillover effects on other global banks that had business ties with SVB and Signature Bank or were exposed to similar risks.

The US banking crisis has had a limited impact on the banking sector in India so far. According to RBI Governor Shaktikanta Das, Indian banks have negligible exposure to SVB and Signature Bank or their subsidiaries. Moreover, Indian banks have a lower proportion of investments in long-term bonds compared to loans in their asset portfolios. Therefore, Indian banks are less vulnerable to interest rate shocks than US banks. However, Das also cautioned that Indian banks should remain vigilant and monitor their interest rate risk positions closely. He also said that RBI is closely watching the developments in the global financial markets and is ready to take appropriate actions if needed.

The interest rate movements

  • The interest rate movements refer to the changes in the interest rates in different countries or regions that affect the cost and availability of funds for banks and their customers. The interest rate movements are influenced by various factors, such as inflation, economic growth, monetary policy, fiscal policy, exchange rates, market expectations, etc.
  • The interest rate movements have had a significant impact on the banking sector in India. On one hand, the interest rate movements have affected the profitability and competitiveness of Indian banks, as they have to adjust their lending and deposit rates according to the market conditions. The interest rate movements have also affected the valuation and riskiness of banks’ assets and liabilities, especially those that are linked to floating or variable interest rates. On the other hand, the interest rate movements have also affected the demand and supply of credit in the Indian economy, as they have influenced the borrowing and saving decisions of households, businesses, and governments.
  • To manage the impact of interest rate movements on the banking sector and the economy, the RBI has used various tools, such as the policy repo rate, the reverse repo rate, the marginal standing facility rate, the cash reserve ratio, the statutory liquidity ratio, the liquidity adjustment facility, the open market operations, etc. The RBI has also issued guidelines and norms for banks to measure and manage their interest rate risk in their banking book and trading book.

Local Events

Local events are those that occur within India but have implications for the banking sector. Some of the recent local events that have impacted or can impact the banking sector in India are:

The bank privatization

  • The bank privatization refers to the proposal by the government to privatize some of the public sector banks (PSBs) in India as part of its disinvestment plan. The government has identified four PSBs – Bank of Maharashtra, Bank of India, Indian Overseas Bank, and Central Bank of India – for privatization in the current fiscal year. The government aims to reduce its stake in these banks to below 50% and transfer their management control to private investors.
  • The bank privatization has had a mixed impact on the banking sector in India. On one hand, the bank privatization is expected to improve the efficiency, profitability, governance, and innovation of the PSBs and make them more competitive and resilient. The bank privatization is also expected to reduce the fiscal burden on the government and free up resources for other developmental needs. On the other hand, the bank privatization has also raised some concerns and challenges for the PSBs and their stakeholders, such as employees, customers, unions, regulators, etc. These include issues related to valuation, due diligence, asset quality, social obligations, labor relations, regulatory compliance, etc.
  • To facilitate the bank privatization process and address its challenges, the government has set up a high-level committee under NITI Aayog to prepare a roadmap and criteria for selecting and selling PSBs. The government has also assured that it will protect the interests of all stakeholders and ensure that no PSB customer is adversely affected by the privatization.

The cyberattacks

  • The cyberattacks refer to the malicious attempts by hackers or criminals to breach or disrupt the information systems or networks of banks or their customers. The cyberattacks can have various motives and objectives, such as stealing money, data, or identities, extorting ransom, disrupting services, damaging reputation, or advancing political or ideological agendas.
  • The cyberattacks have had a serious impact on the banking sector in India. According to a report by IBM Security, India witnessed the highest number of cyberattacks on the financial sector in 2022, accounting for 60% of the total attacks in the Asia-Pacific region. Some of the major cyberattacks on Indian banks in recent years include the Cosmos Bank heist in 2018, the City Union Bank fraud in 2018, the Punjab National Bank data breach in 2019, the Canara Bank malware attack in 2020, and the J&K Bank phishing scam in 2020.
  • The cyberattacks have exposed the vulnerabilities and gaps in the cybersecurity systems and practices of Indian banks and their customers. The cyberattacks have also caused financial losses, reputational damage, legal liabilities, and customer dissatisfaction for the banks and their customers.
  • To prevent and combat cyberattacks on the banking sector, the RBI has issued various guidelines and directives for banks to strengthen their cybersecurity frameworks and capabilities. These include setting up a cybersecurity operation center, conducting regular audits and tests, reporting incidents and breaches, implementing security controls and measures, creating awareness and training programs, etc. The RBI has also set up a Cyber Security and IT Examination (CSITE) cell to monitor and supervise the cybersecurity preparedness of banks. The RBI has also collaborated with other regulators and agencies to share information and intelligence on cyber threats and incidents.

D-SIB

Another local event that has impacted the banking sector in India is the Reserve Bank of India’s (RBI) list of Domestic Systemically Important Banks (D-SIBs), which are banks that are too big to fail and have strict regulations to ensure their stability. The RBI has been identifying and disclosing the D-SIBs since 2015, based on their size, interconnectedness, substitutability, and complexity. The D-SIBs are classified into four buckets, with increasing requirements of additional common equity tier 1 (CET1) capital as a percentage of risk-weighted assets. The higher the bucket, the higher the systemic importance and the additional capital requirement.

As of 2022, the RBI has identified three D-SIBs in India: State Bank of India (SBI), HDFC Bank, and ICICI Bank. SBI is in bucket 3, requiring an additional CET1 capital of 0.6%, while HDFC Bank and ICICI Bank are in bucket 1, requiring an additional CET1 capital of 0.2%. The RBI has also disclosed that Axis Bank, Kotak Mahindra Bank, and Punjab National Bank are among the other banks that are being monitored for their systemic importance.

The D-SIBs have a mixed impact on the banking sector in India. On one hand, the D-SIBs enjoy a competitive advantage and market confidence due to their perceived safety and government support. They also have access to a large customer base, diversified product portfolio, and economies of scale. On the other hand, the D-SIBs also face higher regulatory scrutiny and compliance costs due to their additional capital requirements and enhanced supervision. They also have to balance their social obligations and commercial objectives in serving the diverse needs of the Indian economy.

Some of the top banks for your Reference is:

Bank NameAssets (in crore)Market Share (in %)Customer Base (in million)Products and ServicesRatingsAwards
State Bank of India51,77,54522.6490Savings, current, fixed deposits, loans, cards, insurance, investments, remittances, etc.A- by S&P, Baa3 by Moody’s, BBB- by FitchBest Bank Award by Business Today-KPMG, Best Public Sector Bank Award by CNBC TV18
HDFC Bank17,99,5067.956.8Savings, current, fixed deposits, loans, cards, insurance, investments, remittances, etc.BBB+ by S&P, Baa3 by Moody’s, BBB- by FitchBest Large Bank Award by Business Today-KPMG, Best Bank Award by Forbes India
ICICI Bank15,73,8126.948.9Savings, current, fixed deposits, loans, cards, insurance, investments, remittances, etc.BBB- by S&P, Baa3 by Moody’s, BBB- by FitchBest Private Sector Bank Award by CNBC TV18, Best Digital Bank Award by IBS Intelligence
Axis Bank10,10,3254.430.5Savings, current, fixed deposits, loans, cards, insurance, investments, remittances, etc.BBB- by S&P and FitchBest Retail Bank Award by The Asian Banker

Conclusion

The banking sector in India is one of the most dynamic and diverse sectors in the economy, catering to the needs of various segments of customers and stakeholders. The banking sector in India is also influenced by various global and local events that can have positive or negative impacts on its performance and stability. Therefore, it is important for the banks and their customers to be aware of these events and their implications, and to take appropriate measures to mitigate the risks and leverage the opportunities. The banks in India also need to constantly innovate and adapt to the changing customer preferences and expectations, and to enhance their efficiency, profitability, governance, and resilience. By doing so, the banks in India can contribute to the growth and development of the Indian economy and society.

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