What You Should Do After Yes Bank: Diversify Banks, Demat, Investment

The long depositor queues seen outside Yes Bank branches, and earlier at branches of the Punjab and Maharashtra Cooperative Bank, should focus all individuals on the need to spread their risks even when it comes to keeping money with banks. Here are the main lessons to learn about deposits and savings.

First, the obvious. Do not restrict your bank accounts to one. Monika Halan, in her book, Let’s Talk Money, advises all salary earners to maintain three bank accounts – one where the income flows in, another for routing regular investments, and a third for monthly expenses. This is great advice. I would add that while three accounts do serve different purposes, one additional point needs making: make sure that at least one of these accounts is with a solid public sector bank. The chances are no government will let a public sector bank go bust and destroy your savings, for it is tantamount to a sovereign default.

Second, it’s not just about bank accounts. It’s also about payment systems and demat accounts. When Yes bank went bust, Phone Pe UPI payments got stuck as Yes Bank was the routing bank for such transactions. If you were a bank customer, you not only would have no access to your money, but also its payment system. So, spread your payment systems risks too.

While demat accounts are unlikely to be tampered with even if the bank going bust is the depository participant, it is good to diversify here too. Reason: in the recent Karvy Share Broking case, the broker was alleged to have misused securities held on behalf of clients.

Remember, the shares you buy do not become yours till they actually get shifted to your demat account (and stay there). Sometimes, if you have given your broker power of attorney to trade on your behalf in certain circumstances, you are vulnerable if he has betrayed your confidence. So, do keep at least two demat accounts, including one with someone who is not your regular broker too.

Third, diversify your investments across not only different kinds of stocks, but also different classes of investment. Shares can crash, and so can bonds and debt funds, if the bonds bought are issued by a company going insolvent or facing a writedown (recent examples include DFHL, and Yes bank’s additional Tier-1 bonds). You should have stocks (most of it large-cap), bonds, gold (sovereign bonds), tax-free government bonds and an owned house (not as investment, but as a place where you can stay for free if incomes dwindle).

I have been advocating investment in public sector tax-free bonds and sovereign gold bonds for some time, and these are actually the best-performing parts of many people’s portfolios over the last year or so. These asset classes are now over-priced, but putting some money (5-10 per cent) in these assets once their prices come down can be considered as an alternative to a purely stocks-bonds-bank deposits portfolio.

In one word: diversify, even if the returns are not so great. Safety of capital comes first, returns next.

Another piece of advice: save more, no matter what the returns. High returns cannot last forever in any asset class.