Post demonetization, there has been a significant push by the government and the regulators towards digitization of paymentspayments and receipts are through banking channels - cards, online transfers etc, cashless economy and financialisation of savings/ investmentsinvesting into mutual funds, fixed deposits as against real estate, gold.

We, the citizens of India have been generally very supportive of the said proposition.

• Small businesses, retailers, traders are increasingly moving towards the banking channels;
• Consumers and investors are parking more and more of their money in the bank deposits and the mutual funds vis-a-vis real estate and gold in the past

Above is especially commendable given our old habits wherein the preferable mode of transaction was always cash (so as to avoid taxes).

Reason for support is our love for Mr. Modi and his relentless campaign against corruption and making us aware about our duty towards building better India.

Government on it’s part also ensured facilitation of the requisite tools and services to the wider landscape – granting new banking licences (payments bank, small finance banks etc), transferring government subsidies through the banking channels, Aadhaar linked KYCs, reducing online transaction costs, allowing expansion of low cost brokerages etc.

‘Trust’ and ‘Faith’ – two keywords that have been helping digitization of payments and financialisation of savings

Faith – wherein we accept and assume that the government and the regulators have systems… and more importantly they are enforcing those to tightly control the institutions entrusted with our hard earned money.

Trust – that we can put a faith on the government and the regulators to ensure that our hard earned money is safe ! 

What PMC and Karvy episodes have done is… shaken this belief !

People overnight have been stopped access to their own money and that too without any fault of theirs !

Key questions that keep bothering me when I think about these two cases-

• Were the effected bank customers had any say in loans to the stressed builder?
• Why the history of the bank and some of the key associated people didn’t raise concerns in the mind of the RBI and why was there not a closer scrutiny?
• If co-operative banks are considered as risky, why to even allow them to operate as a ‘bank’. Let them also operate like a NBFC so that the deposit holder is aware about the associated risks.
• Deposit insurance of Rs 1 lakh that is proposed to be increased to Rs 5 lakh – if my full money is not secured, how can I be forced to keep my money in the bank. I should be allowed to keep it in cash (obviously after paying income taxes). I should not be taxed to withdraw any amount of money from the bank.
• If control over too many banks become difficult, isn’t it counter-intuitive to allow so many new banking licences in different shapes and formats.

Banking is a trust and boring business and anyone who doesn’t operate it like that, is not entitled to use the word ‘bank’.

• How can a broker have free access to client’s security and transfer them to his own account without the depository or regulator getting a proper justification?
• SEBI is so strong on procedures and compliance. How could something so basic was missed?
• As per the latest news, payment payouts have been delayed to 95,000 retail consumers by Karvy. Like PMC, why should the end consumer suffer here and in what capacity? Was he privy to the information, was he a shareholder, was he the promoter? In what capacity is he denied his fund transfers?
• Shouldn’t SEBI think around the allowed business model of small and non-bank brokerages? Wouldn’t it be better to allow them to only provide the front-end technology interface (and act more like distributors and facilitators) and let the banks manage the back end including control over dmats, trading settlements and fund transfers?
• Would it not make sense to restrict the back end to selective few banks with strong balance sheets?

A brokerage business managed with proper systems in place can in no way go kaput !

The above events have really made me think. I really don’t know, as a consumer as well as an investor, where and whom to put my faith and trust with. 

I can be extra precautionary but if a bank or brokerage is defaulting and the customer has been stopped to access his money… let me accept… I am clueless… God only knows !

In the interim – I have moved all my accounts and transactions to the ‘perceived’ stronger institutions.

Disclosure: I am neither a PMC customer and nor of Karvy.  But should I really be, to express my concerns? Today it’s PMC and Karvy, tomorrow it can be any other wherein I might be directly impacted.

Illustration Credit: Vecteezy.com