PMC Bank crisis: How safe are small saving schemes?

Banks in India have traditionally enjoyed high level of trust among depositors. However, the ongoing crisis in Punjab and Maharashtra Co-operative (PMC) Bank and Lakshmi Vilas Bank has left many depositors worried about the safety of their deposits. In case a bank goes bust, the depositors are entitled to receive only Rs 1 lakh under deposit insurance scheme. This is inadequate for most depositors who keep much higher deposits in banks. No wonder they are anxious about other fixed income investments as well. Is your investment in small savings schemes safe? Let's find out.

Governance of small savings schemes

Traditionally, post offices offer small saving schemes. These include post office savings account, term deposits, monthly income scheme, public provident fund, national savings certificate, kisan vikas patra, senior citizen savings scheme and sukanya samriddhi account. Recently, India Post got the licence to become a payments bank. This has created confusion among many who have invested in small savings scheme and are wondering if these are as vulnerable as a bank fixed deposit.

However, there is nothing to be worried about. Even after this conversion, these schemes enjoy the same level of safety as before. All small savings schemes offered by post offices have full backing of the government and are considered safest. "Both, post office term deposits and savings accounts are managed by National Savings Institute (NSI), a Ministry of Finance (MoF) body, says Naveen Kukreja, CEO& Co-founder, Paisabazaar.com. "These investments enjoy a sovereign guarantee, thereby making them fully secured and safe" he adds.

Small savings schemes via banks

Besides post offices, most banks can also offer small savings schemes such as public provident fund, senior citizens savings scheme and sarva shiksha abhiyan but it does not make them bank products. A government body NSI essentially runs these schemes and banks and post offices are only mediums to distribute these schemes.

If a PMC Bank-like crisis erupts, unless the Reserve Bank of India cancels the licence of the bank or takes any major action such as takeover or merger, the branches of the troubled bank keep functioning. Therefore, if you have invested in any of these schemes and if they are about to mature, no post office or bank can deny you your maturity amount. So, if you wish to avail of mid-term partial withdrawal feature of these schemes offered by a troubled bank, you can very well do it.

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