A case for banking on post office savings schemes

The recent crisis at the Punjab and Maharashtra Cooperative (PMC) Bank has brought the safety of deposits in banks and other financial institutions into focus. In the backdrop of this crisis of confidence, post office savings schemes emerge as a safer option, with the assurance of zero risk to deposits, note experts.

Soon after the PMC crisis, the RBI assured investors that the banking system was safe. However, the fact that the deposit insurance scheme provides protection for a maximum of ₹1 lakh per depositor in a bank has is a concern in some quarters. The government set up the Deposit Insurance and Credit Guarantee Corporation under the RBI to protect depositors in case a bank fails.

Union Finance Minister Nirmala Sitharaman said recently that the government is considering increasing the insurance cover.

Again, the insurance protection is on a per-depositor basis; that is, even if a customer holds multiple deposits in a bank, he is entitled to only ₹1 lakh as insurance cover.

A case for banking on post office savings schemesA case for banking on post office savings schemes


In the case of postal deposits, there is no concept of insurance as the money is fully secure. The investments in post office schemes, which are the products of the Union Ministry of Finance, come with a sovereign guarantee, says information available on the National Savings Institute, which works under the Department of Economic Affairs.

“A lot of uninformed discussion on the safety of deposits is taking place. The post office is part of the government and part of the sovereign, which makes the deposits safe. Whereas, public sector banks even if owned by the government, are governed by the Banking Companies Act and function like a company,” said S. Narayan, former Finance Secretary.

R. Anand, Postmaster General, Chennai City Region, pointed out that the money deposited in a post office goes to the National Small Savings Fund of the Central government. Even if there is an instance of fraud, the depositors’ money is assured. There may be only slight delay in recovering the amount lost.

Safety features

Explaining the safety measures, Mr. Anand said that besides dedicated postal cadre to cross-check deposits made, alerts are also sent through the Fraud Risk Management Unit if any unusual transaction is detected — be it premature closure, forged signature or activation of dormant accounts.

“We will be able to detect such fraud by postal staff members within a year. In the past two years, there have been 15,000 such alerts. We generally look for patterns in sudden huge withdrawals, revival or pre-closure of accounts in a particular post office,” he said.

There are also periodic inspections wherein each post office is covered within a year. The department settled claims above ₹20,000 by cheque to avoid any fraud.

Mr. Anand said two cases were detected in the SR Palayam post office near Minjur and Mathur falling under the Sriperumbudur sub post office wherein ₹8 lakh and ₹14 lakh was siphoned off in 2018. The fraud came to light within a year and amounts were credited to the depositors’ accounts.

However, many complain about the unfriendly staff at post offices, saying it acts as a hindrance to depositing money in their savings schemes. “While it is true that post office savings are safe, the attitude of the staff is a major hindrance, especially for senior citizens. We have to wait for hours to update passbook and to withdraw deposits after maturity,” said Prof. V. Chandrasekhar, president of the Senior Citizens Group of Besant Nagar.

Bank officials insist that the safety concerns are far-fetched. “In the past 50 years, there has been never been an incident of scheduled commercial banks not repaying deposits. There is enough institutional mechanisms in place to ensure that depositors’ money is safe in scheduled commercial banks and there is no reason to worry,” said N. Kamakodi, MD and CEO, City Union Bank.

A senior official from a public sector bank said he had not witnessed any change in customer behaviour post the PMC crisis. “Though on paper deposits are insured only up to ₹1 lakh, the government being the owner could pitch in to save the depositors,” he said.

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