The Sunday Times FT poll this week on the safest investment option – between state commercial banks and private commercial banks -- came up with an interesting conclusion: Most of the investing public prefer state banks.
Close to 300 people responded in the email poll conducted among a cross section which included CEOs, executives, professionals, government officials and housewives and aimed at ascertaining whether the people’s views have changed since our November 2008 poll which showed real estate, treasury bills and commercial banks are the preferred option. This week’s poll reflected the concerns arising out of the spate of collapses of unregistered finance companies and the struggle by the registered ones to meet their commitments.
The question asked was which is the safest investment option - state commercial banks or private commercial banks; given a choice where would you invest your money - (1) or (2); and what is more important: (a) higher interest rate, or (b) safer institution? More than 60 % of the respondents said they preferred state banks. (See full results in graph above).
-- State banks are perceived as safer than private banks though the state has not guaranteed the deposits in the former. Some time back the People’s Bank operated with a negative capital but still there was no run on bank deposits because of the perception that the government will bail out depositors in the event of a crisis.
-- Private banks include some weak and vulnerable ones and some well managed and well capitalised ones with low NPLs. The latter may be better than state owned banks.
-- While I prefer state banks it is likely that the government/Central Bank uses these funds available for their own needs.
-- Even if state banks go bankrupt the government can print money and re-capitalise them.
-- The best choice is government securities – treasury bills and bonds which now offer more than 15% a year.
-- A safer institution is better than relying on high interest alone but can we find one in the country?
- Security of investment is more important than the rate of investment as the primary objective is to protect the capital.
- Given the choice of where to keep my money, I’ll keep it in bags at home! Financial discipline in the country is so bad that it’s scary to invest anywhere. There is no proper monitoring of the state or private institutions by the Central Bank, which is thoroughly politicized. State banks lend so much to the government to implement their “fancy projects” such as Mihin Air etc.
Thus, how can one be confident of the state banks? Private banks on the other hand are not properly monitored. How could Seylan Bank lend so much to the Ceylinco Group without any collateral, whereas they ask other clients to mortgage everything they have to obtain a small credit facility and seek parate action as soon as the loan falls into arrears to recover the loan?
-- Before and after the financial crisis, state commercial bank is the safest option.
-- Keep the money at home -- at least you will be happy that the money is with you. What is the purpose of an investment without security?
-- The safest and best is in treasury bills. For example currently a 1-year TB will yield about 17 % per annum, which is higher than most banks will pay for a fixed deposit. The TB is guaranteed by the government and is the safest form of investment. In the case of the safety of money in a private bank, see what happened to Pramuka Bank which was regulated by the Central Bank.
-- My experience with private sector banks ... especially those that advertise vigorously over the electronic media requires to be viewed with caution. Recently I wanted to close my account with a leading bank here. The request was made by letter.... it took 14 days for them to do a SWIFT/TT transfer. Despite this delay the normal rates were charged for the transfer ....that too after wasting a trip to the bank and several very costly telephone intimations for which all kinds of false information was given by some untrained staff!
-- Buy gold or land … that’s the safest and has the best return.
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