WHY SAVING IN BANKS IS NOT A VICE BUT A VIRTUE?
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Article on Bank’s Perspectives
(The article aims at displaying the mandatory provisions regarding
liquidity management in banks to safeguard the deposits/ savings of depositors
at banks and financial institutions (BFIs) and tries to show the impact of how
depositors will contribute in the national economy through lending behaviors of
the banks. Moreover, the article also tries to grow public confidence in banks
specifically to the individual depositors/ savers. Some policy suggestions and
strong compliance management for depositors’ stake are also made in the article
to further clarify on how should the banks’ act on the virtue of the savers’
money)
If
you deposit certain money in banks and financial institutions, you’ll be
facilitated with interest payback along with your money at demand. You’ll be
facilitated by utility payment system, ATM cards – money wherever you are,
e-banking and mobile banking services and such other products. These are your
direct benefits with savings at banks. Similarly, your deposits up to 2 lakhs
are insured in the Deposit Credit Guarantee Corporation (DCGC), hence small
depositors have full insurance coverage in their money/ savings and risk of
large depositors are also to some extent covered from DCGC up to 2 lakhs and in
excess of the same are covered through Bankers’ Blanket Insurance (BBI) usually
from the bank’s perspectives. Deposit insurance more than 2 lakhs has become an
emerging issue yet implementation and full adherence on it is underway due to
multiple reasons. All your deposits are not invested by BFIs’ because of compliance on various supervisory
prescriptions are followed by banks and assurance, enforcements and compliance
are timely reviewed on periodic basis both on side and off side. There are mechanisms alert to review any
malfunctions like stress testing, CAMELS rating system and such other testing
tools.
Prescriptions
like liquidity ratio maintenance of 20%, credit to deposit (CD) ratio
maintenance up to maximum 80%, cash reserve ratio (CRR) maintenance of 4% to 6%
as per bank’s category, statutory liquidity ratio (SLR) maintenance of 10% to
12% as per bank’s category are some measures about liquidity management in
which depositors money/ savings are directly concerned with. Hence, relevance
of liquidity management to customers’ deposits is fairly considered in the
banking sector.
Further,
bank retains deposits for lending purpose. Lending or advancing loans is one of
the important functions of banks. Lending is also a deposit mobilization. While
depositing money in a bank account you have to know that your money is invested
in a productive sector like agriculture, tourism industry, hydropower or energy
producing sectors, construction companies, etc. Prescriptions have been
directed to banks to provide 20% loans on productive sector (agriculture,
energy, tourism and industries) which is mandatory. Similarly, 4.5% of total
loans and advances needs to be extended to the deprived sector also called
priority sector in a view to enhance financial access to poor and low middle
class people. The mission of all these
supervisory instructions is to enable infrastructure development, industrial
development, agri-development, power generation, employment creation and
addressing poverty concerns through financial access and empowerment of
socially marginalized poor and strengthen social fabric to attend the mission
of sustainable development.
An
example for very simple understanding for you is, when there is a 10 billion
deposit in banks, it means that only 8 billion of the deposit is lendable.
Again out of the total 10 billion, cash, bank balances, short term placements
and investments should comprise more than 20% of 10 billion as liquid assets.
Similarly, the monthly total of NRB balance, investments on government
securities and cash balance at vault to total deposit will derive 10% to 12%
SLR in banks. CRR is the cash reserve ratio to be maintained by banks in the
Central bank and is prescribed on starting of each fiscal year considering the
economic condition including inflation and the CRR amount is calculated by
banks with reference to their net demand and time liabilities. And at today’s’
scenario CRR of the commercial banks in Nepal is 6% i.e. 60 million of cash and
bank balance needs to be maintained by banks fortnightly. Hence, the circle of
deposit management or liquidity management is again indirectly concerned with
the deposits of valued customers.
Moreover,
through lending or loan perspective, when 80% or near about 80% deposits are
deployed as per the supervisory rules and consistent with the internal
regulations, policies and management guidelines than as a whole scenery
development can be expected from domestic manufacturers, industrialists,
businesses, retailers, farmers and people under social inclusion or
marginalized. Employment creation and poverty alleviation/ minimization become
possible. Growth and development in
market through financial injection also improves the contribution of financial
institutions in the national GDP.
Summing
up, strong saving policy enforced by the government and directed by Central
bank, implemented by BFIs in order to retain deposits, ensure healthy savings
can provide new enthusiasm in the economy ultimately benefiting the ends i.e.
the public through financial system. This also helps in regulating ML/ FT
through improved supervision included in the saving policy. Furthermore, transparent corporate
governance, ethical banking and compliance, improved watch dog for monitoring
and supervision, strong internal control policies, visionary management, smart
employees and literate savers/ depositors and loanee also is the key to savers’
virtue. Hence, on grounds of various aspects depositors are valued in
banking sector the significant synergistic effects moreover creating virtue and
not the vice.
DAHAL, JEEVAN (JeevDSK)
DAHAL, JEEVAN (JeevDSK)
GRAND
BANK NEPAL LTD.
DEPARTMENT
OF INTERNAL AUDIT
CELL
NO: 9841981057
WEBSITE:
www.jeevdsk.blogspot.com
