How do you know your bank is trustworthy? Here is a checklist

Antara Basak
·2 min read
concept of financial protection - Banks
concept of financial protection - Banks

An essential part of our existence is a bank. Almost all citizens of the country have bank accounts to keep their money ‘safe’. It is a crucial word because all banks thrive on the promise of “safety” when they invite people to be stakeholders. But what actually makes a bank safe outside of the banks own advertisement of it? 

Here are a few things that decide the credibility and safety of a bank

Government guarantee

If a bank says they are safe for your big investments, this is a statement that should be taken with a pinch of salt. In reality, the Deposit Insurance and Credit Guarantee Corporation Act 1961 says that legally, a government or private bank is only safe for savings up to Rs 1 lakh. This is an archaic law that has never been accounted for post-1947. Finance minister Nirmala Sitharaman hiked the amount to Rs 5 lakh, which came into effect in 2020.

Market position

One needs to look at the financial health of the bank and market position to figure out if they can withstand sudden financial distress. This makes them “safe” because the market will have confidence in their returns and rank them accordingly. The consistency in performance, managing risk, professionalism and automation levels makes a bank safe.

Banking risks

Every banking transaction comes with a set of risks, big or small. The customer must read the documents carefully and understand the risks before investing in a bank. Just like businesses, banks are also vulnerable, each to a different degree. It is up to the consumer to ensure that they do not put all their assets under a vulnerable bank. There is no risk-free investment in any economy, especially free-market ones.

Keep in touch with the bank’s developments.

Following financial news is of the utmost importance because it gives people an idea about their preferred financial institutions. After investing in a bank, it becomes necessary to follow up on its health in the market. If it is in the news, it is essential to determine if the development is positive or negative. Keep track of the non-performing assets of the bank. It is equally important to finding out who are the stakeholders, how many big names are there, and if the bank has been profitable recently. A bank’s review board will also have customer testimonials, which contributes a lot towards figuring out if the bank is trustworthy.

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