Column : Trusting state banks

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: The global crisis may be taking the wind out of our stock market but it has been quite a boon for our public sector banks. Everyone you talk to has or is planning to shift their money into the safety of our old and ‘reliable’ public sector banks.

I imagine the biggest beneficiary will be State Bank just because of the popular perception about its safety. One of my colleagues told me his father has just taken out his money and put it into State Bank this month.

Similarly, just recently , I was at dinner with my niece in Kolkata, and the first thing she asked me was whether she should withdraw her money from a foreign bank and a private bank (not the one you think)? I asked her why, are you not happy with their service? She said no, on the contrary, she was very happy with the service. She singled out the private bank staff for great responsiveness and warmth. She could do things on the phone with them and not have to waste time in the branch. But then she said with all this financial turmoil it maybe safer to go to State Bank despite all this.

After much persuasion on the complete safety of these banks and the Indian banking system at large, she relented. But just as I was leaving she said perhaps she should shift out at least from the foreign bank, the private bank is at least Indian but who can be sure of these foreign players today!

Now my niece is a professional and is very bright but yet demonstrates such anxiety. Therefore, the lack of confidence that is starting to emerge in our system is certainly very perceptible.

The other good news for public sector banks, especially State Bank, is that they are getting swamped with deposits just when the demand for bank credit is shooting to an all-time high. All alternative forms of credit are drying up. FIIs have withdrawn about $5-6 billion from the Indian market. Similarly foreign banks suffering capital erosion due to subprime losses are very cautious, the ECB market has dried up and the stock market is barely liquid for new issues.