Pvt Banks Cautious After ICICI Bank Bust Scare

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Mumbai, April 16: : The recent imbroglio at ICICI Bank has made other private banks cautious and compelled them to devise strategies to avoid such a crisis as it may endanger their survival.

Banks now want to follow a no-nonsense approach to avoid a situation that saw a sudden rush of cash withdrawals from ICICI Bank ATMs (automated teller machines) and branches in Gujarat and some parts of Mumbai.

“Better customer relationship is the best way to handle such a situation. Customer-centricity also helps minimise the damage caused by rumours of this kind,” said a banker on conditions of anonymity. Private banks, especially the weaker ones, are the most vulnerable to such a situation.

ICICI Bank could meet the withdrawal demand successfully, but any such crisis with another small private sector bank could be disastrous for the bank and the banking sector as a whole, said a banking analyst with a equity research firm.

Experts feel that banks should keep a tab on the expansion in customer base and see whether it has sufficient infrastructure to service the increased client base.

“The rumours which led to the crisis could spread to any other bank and the avoidance of such incidents requires continuous interaction with the bank customers and depositors as banking is basically a business of trust,” said a senior official with a private sector bank with a major presence in Gujarat.

“Experience does not match rumours and hence precaution on operational risks is a must,” said another banker, adding timely replenishment of ATMs is necessary and particularly ahead of a spate of holidays, banks must ensure enough liquidity to avoid such incidents, he added.

“With proactive measures available in modern times, banks must take note of unusual transaction activities and should respond immediately through media or other communication channels to make the depositors aware of the fact,” said another banker.

“The crisis at the country’s largest private sector bank was more of a logistics problem than a financial one and it was aggravated by the battered psychological state of depositors in Gujarat in the wake of a series of cooperative bank scandals,” said a senior official of a private bank.

ICICI Bank’s aggressive image also helped rumour mills to scare the depositors, said retail head of a private sector bank, adding the recent slump in the stocks of IT companies triggered the panic button.