Check your Bank's financial health

Today's Times of India carry a very good article regarding financial health parameters of a bank & is a must read for anyone not knowing these things earlier(aka most of us). "@rogerthat":https://www.desidime.com/users/...14 "@androgame":https://www.desidime.com/users/...51 Is your money safe in the bank? The collapse of Yes Bank has shattered the myth that banks can’t fail. Find out if your bank is safe and what to do if it fails SANKET DHANORKAR The recent troubles at Yes Bank meant hardship for customers. Worryingly, more such episodes cannot be ruled out with many banks facing financial stress. “Yes Bank isn’t a first, it would not be the last,” says a note by ASK Wealth Advisors. However, whenever a bank fails, the RBI steps in to protect customers. Typically, it arranges for a stronger bank to take over the ailing bank. Depositors get their money back. Still, the whole Yes Bank episode should serve as a wake-up call for bank customers.This week, we will outline a safety blueprint by listing out tell-tale signs of an impending crisis. We will walso tell you the steps to take if your bank account is suddenly frozen. How to bank safely Let’s start with some precautionary measures that can help avoid a liquidity crunch or loss of savings if your bank fails. Don’t keep all savings tied up in one bank. Maintain savings accounts in at least 2-3 banks and spread the money across these accounts. This should be regardless of whether the bank is public or private. This way, you have multiple options to fall back on in case one account gets frozen. “Ensure different family members bank with different banks. Even if one member’s savings get stuck, others can chip in ,” says Adhil Shetty, CEO, Bank Bazaar. Further, spread ECS mandates for loans, SIPs and other bill payments across different accounts. Amol Joshi, Founder, PlanRupee Investment Services, recommends letting ECS mandates run from a primary bank account while linking investments to a separate bank account. He suggests using a liquid fund as an alternative to park surplus savings instead of keeping large amounts lying in the bank. Customer deposits are insured up to ₹1 lakh per bank. This year’s budget has proposed hiking this to ₹5 lakh. However, how much of an investor’s deposits with the bank are insured depends on the ownership of deposits. Make smart use of the available cover by using different combinations. If you put multiple fixed deposits in joint names with your spouse or children, you can get each covered separately if the first named holder in each is different. Keep in mind that the insurance cover is triggered only when the bank undergoes liquidation. If it is merely put under suspension or moratorium, the deposit insurance will not come into play. Your money will remain locked until the suspension is lifted. Finally, don’t open a fixed deposit in smaller, unstable banks just to get that extra 1-2% return. Before opting for such fixed deposits, evaluate the risks carefully. If your account is frozen A moratorium places a complete freeze on most activities of the bank. Section 45 of the Banking Regulation Act, 1949, empowers the RBI to place such a moratorium for up to six months at a time—and can be extended until a more permanent fix for the problem is found. During this period, the customer will only have limited access to funds lying in his account, with some exemptions permitted in extreme cases. In such situations, those with ECS mandates from the frozen account will be in a fix. The first priority should be to change the mandates tied to the frozen account. However, changing mandates can take some time. If you are unable to shift the bank mandate to another account, use your contingency funds to pay off upcoming EMI instalments or credit card dues. You may have debit mandates for SIPs and insurance premium. To ensure these go through without a hitch, change the mandate by linking with some other account. Provide alternate account details to service providers to prevent redemptions or dividends from being locked up. Spot the warning signs There is no smoke without fire. Several signs can alert you when a bank is in trouble. If the bank has delayed earnings releases or if the auditor has resigned or made an adverse comment, find out why. Watch out for exit of key managerial personnel as it may be a signal that trouble is brewing within the bank. Also monitor any rating downgrades by credit rating agencies. Beyond this, monitoring some basic operating metrics of a bank can give you a fair idea of its health. All listed banks provide financial statements on their websites, giving a break up of various performance metrics. Asset quality is a key monitorable. If your bank’s net NPAs exceed 5%, it shows bad lending practices. Ensure your bank provisioning coverage ratio does not dip below 65-70%. The bank will struggle to remain solvent if its bad loans have to be written off. Ascertain if the bank is properly capitalised by checking its capital adequacy ratio. A low CAR suggests the bank’s net worth may be eroding. Keep an eye on the Current Account Savings Account (CASA) ratio. A lower CASA ratio indicates the bank relies on costlier institutional borrowings to fund operations. The credit-deposit ratio of a bank is another indicator you can track. A higher credit-deposit ratio suggests an overstretched balance sheet, and may also hint at capital adequacy issues. These are some parameters you should monitor regularly to avoid a shock later. Direct image link(original large resolution): https://imgur.com/O...7k "@androgame":https://www.desidime.com/users/...51 can you please check why I can't attach original size image.