Daybreak - The bank locker, as you know it, is crumbling

Episode Date: May 14, 2024

You may be surprised by how often bank lockers are robbed. According to Finance Ministry data, close to Rs 200 crore has been stolen from locker facilities in the last three years alone. This is pretty disconcerting, especially considering that for the longest time the bank locker has been considered the safest place to store your most precious valuables. It also doesn’t help that every aspect of locker management in banks – from actually opening your locker, to eventually closing it – is extremely complicated. The Supreme Court recognised this. In 2021, it passed an order that was meant to make lockers more secure. After that, the RBI issued a new set of guidelines on locker management. But three years later, experts say the RBI guidelines are protecting banks more than customers. So, the question is: Is your locker really the best place to store your valuables?Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Have you ever heard about the great Sonipat Bank Heist? It's arguably one of the most outrageous bank robberies India has ever seen.

Honestly, it would put most Bollywood films to shame. Okay, so here's what happened. In October 2014, a gang of robbers broke into the locker room of Punjab National Bank's Gohana branch in Sonipath Haryana. They managed to steal raw's worth of valuables from close to 90 lockers. But it isn't what they stole that makes this one of India's biggest bank robberies. It's how they managed to pull off the crime. To access the lockers, the robbers use iron rods and spades. to dig a 125-foot tunnel leading straight to the PNB locker room.

The tunnel started from an abandoned building right next door. So on the day of the robbery, they simply climbed into the wall, emptied about 89 lockers and escaped without a trace. Some news reports claim that the robbers were inspired by the plot of Doom 2. But unlike in Doom 2, the culprits behind the. Sonipurth heist eventually ended up in prison. Well, all except the mastermind behind the robbery. He was found dead in his car just days after the crime and police believed that he took his own life by consuming poison. Now if this really was a Bollywood movie, there would have been justice for the victims of this crime. I'm talking about all of the locker owners whose valuables were robbed.

as you would expect, there was a pretty grisly legal battle between the victims and the bank. The victim said the bank had not adequately reinforced the flooring of the wall, and they demanded compensation. Now, unfortunately, the Sonipat heist was not a one-off. In fact, you may be surprised by just how often bank lockers are robbed. According to finance ministry data, close to rupees 200 crore has been stolen from locker for facilities in the last three years alone. That's pretty disconcerting, especially considering that for the longest time,

the bank locker has been considered the safest place to store your most precious valuables. The Supreme Court recognized this and in 2021, it passed an order that was meant to make lockers more secure. After that, the RBI issued a new set of guidelines on locker management. But three years later, experts say the RBI said the RBI's, guidelines are protecting banks more than customers. So the question is, is your locker really the safest place to store your valuables?

Welcome to Daybreak, a business podcast from the Ken. I'm your new host Rahil Filippos, and I'll be joining Stigda every week to bring you one business story that's worth understanding and worth your time. Today is Tuesday, the 14th of May. And by the way, guess what? Starting this week, daybreak goes daily, which means from Monday to Thursday,

you'll have your regular daybreak episodes, and on Friday, well, Snikdha and I have something special plan. Stay tuned. Almost three decades ago, a customer of a prominent public sector bank visited his branch to deposit the rent amount for his locker. But the bank informed him that they had forced open his locker

and assigned it to someone else. The bank claimed that the customer hadn't, paid rent between 1993 and 1994. And then, to make matters worse, they returned only two of the seven ornaments that he had kept in the locker. This is pretty much any bank customer's worst nightmare. It's also a true story. Now, the only upside of this unfortunate incident is that it led to a Supreme Court order

that was intended to protect bank customers who are in situations exactly like this one. The case landed before the Supreme Court in 2021. The court ruled that banks are the custodians of public property. It said that banks can't just claim ignorance and say they know nothing about what their customers have kept in their lockers. The court also said that the existing locker management regulations were inadequate. Finally, someone was prioritizing customer privacy and security. So the ball was now in the law. the RBI's court. Now, to be fair, the RBI held up its end of the bargain. You know, within six

months, it essentially rewrote the locker management rulebook. The goal was to bring in a certain amount of uniformity for safety box services across the banking industry. But for most bank customers, the updated regulations were just another inconvenience. With it came a long list of KYC requirements, complicated procedures, and worst of all, a considerable increase in locker rental fees. It meant more paperwork. And a majority of India's bank customers weren't having it. About 50% of customers have not signed up for the new agreement so far.

This was reaffirmed by a study conducted by community-based social network local circles. More than 50% of locker holders in over 300 districts said they would rather surrender their safety. deposit boxes, then accept the revised terms. Now, here's another way the RBI guidelines benefit banks and not the customer. It allows banks to ask first-time customers for a three-year term deposit in lieu of rent and locker-breaking charges. So if a locker is surrendered prematurely, the customer is to be paid back on a pro-rated basis.

This sounds reasonable enough on paper, except it makes it extremely difficult. to get local branches of banks to shut down a locker. So having a locker at a bank seems pretty painful. So why does everyone want one? More on that in the next segment. Now, the concept of the safe deposit locker has been around for thousands of years, literally from the time of the ancient Egyptian and Roman civilizations. But, funnily enough, between now and then, not much has changed.

Other than the fact that now, walls have been replaced. by safety deposit lockers that are generally found in the basement of your local bank branch. These lockers are still considered the safest way to protect your most valuable possessions. Money, jewelry, documents, you name it. This is clear from the fact that thousands of years later, the demand for lockers has only increased. So much so that private players have seen a massive opportunity here. There are so many private companies offering safe deposit locker services now. More on that later.

But why do so many people need lockers at all? Well, that's largely thanks to India's growing upper middle class. As their wealth and valuables increase, so does their need for a safe place to store it all. But unfortunately, the bottom line is that India just does not have enough lockers to go around. At present, there are 6 million lockers in the country. This is not even close to the 60 million that will be required by 2030 according to a recent study. It also doesn't help that every aspect of locker management in banks,

from actually opening your locker to eventually closing it, is extremely complicated. First of all, getting a locker has almost become like getting on the guest list of an A-less Bollywood party. If you don't already have a lot of money parked in that particular bank, you're put on an unending wait list. And after all of that, let's say you actually managed to get a locker. You'll then have to pay rental fees, which are only getting more and more expensive. Since 2021, annual locker fees for smaller lockers have increased three times.

For a larger locker, you're looking at paying twice as much as you would have before 2021. Now, see somewhere down the line, you decide you don't need your locker anymore. You want to close it. Banks have made that next to impossible. The Ken spoke to a bank customer who was actually trying to surrender their locker at a public sector bank. The bank insisted on an affidavit

as well as a succession certificate since they were a joint holder along with their parents, both of whom had passed away. Two years later, they still haven't been able to surrender their account. That's not even the worst of it. Say hypothetically, someone breaks open your locker and steals your valuables.

Or maybe that damage somehow. What happens then? Well, according to the RBI's latest guidelines, if a bank is responsible for the loss or theft of a locker's contents, a customer is entitled to a maximum compensation equal to 100 times the annual locker rental fee. What that means is that you may get some compensation. but it won't be close to the value of the item stored in your locker. For example, say you stored two gold necklaces worth 5 lakh rupees each in a locker and both are stolen.

You're entitled to a total compensation of not more than 2.5 lakh rupees. But at least you're getting something. Previously, you weren't even entitled to that. But there's still a long way to go. The only way to fix some of these issues is through thoughtful regulation. But unfortunately, like I said a little while ago, most of the regulation in this space

hasn't put the customer first. So what's next? You have a bunch of valuables, you need to keep them somewhere safe. If not, banks, then where? Well, more on that in the next segment. Okay, here's some good news. Do you want to keep your valuables at a bank?

No problem. You can always deposit there. at a private save deposit company. The RBI guidelines worked out great for these companies. More and more people want lockers, but without having to go through the long-drawn procedures that come with banks. So, a bunch of private players saw a huge opportunity here. You see, the locker business reportedly accounts for roughly 6,000 crore rupees.

That's a pretty inconsequential amount for the average bank, but not for these private players. Companies like Delhi Safe Deposit Company or Chennai-based OroSafe lockers saw a gap in the market that they could pretty easily fill. They essentially promise convenient locker services complete with seamless digital onboarding

and insurance solutions. Most of these companies offer full compensation in case of damage or theft. Sure their fees are pretty much the same as banks but there's no denying that these are more secure, robust and flexible for safeguarding personal valuables. But of course, there's a catch here. These private vault operators are not regulated by the RBI, which means that this is a business that is largely unregulated.

So the burden of due diligence lies with the customer. That's a pretty big risk, especially when it comes to your most. valuable possessions. So regardless of whether you decide to open a locker at a bank or with a private player, there is a huge amount of risk involved. So the government and the RBI have a fair bit of figuring out a room. There's a clear need for regulation that puts the customer first and not the bank. But until then, what about your precious valuables?

Well, unless you have a wall hidden away underground somewhere, Maybe hide them under a mattress? Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the Ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's produced by me, Snigda Sharma. and edited by Rajiv Sien.