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Why a new bill by government is terrifying the Indian bank depositor

Why a new bill by government is terrifying the Indian bank depositor”

The government is considering to raise the protection on bank deposits from the current Rs 1 lakh when the Financial Resolution and Deposit Insurance (FRDI) Bill is taken up for final drafting, highly-placed sources said. Once a financial services company, including a bank, slips into critical category, the Resolution Corporation will take over the firm and prepare a resolution plan during a year, which can be extended by another 12 months. Particularly at a time when the growing menace of rising non-performing assets (NPAs) or bad loans has hit an all-time high, with PSU banks writing off Rs 55,356 crore in the first two quarters of the fiscal year 2017-18, about 54 per cent higher than it was last year, the bail-in clause is alarming, to say the least.

The Bill provides for the setting up of a Resolution Corporation, which will classify financial institutions according to their risk of failure.

Are your savings safe in a bank? Bail-in clause essentially means that the government will use the depositors' savings to shore up the finances of struggling banks instead of using the tax-payers' money for the same objective. A bail-in would imply using the depositors' money to do the same. While the banks can see influx of fresh capital with the little rearrangement, this is going to hurt the lower and middle classes, if invoked.

"Our hard earned money that we have saved for our children and for our future will be used to bail-in the banks", the petitioner said.

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This is the third clarification issued buy the Finance ministry within a week in its bid to assuage concerns over the safety of depositors' money in bank accounts if the Financial Resolution and Deposit Insurance Bill 2017 is passed and implemented.

Jumping to damage control following a whiplash over the bail-in clause in a draft legislation on financial resolution, Finance Minister Arun Jaitley has asserted that depositors would be "fully protected" in the event of a bank failure. "The government is very clear about it", Jaitley was cited as saying in the statement. Anything beyond that is not explicitly guaranteed by any law or regulation or the government. Deposit beyond Rs 1 lakh does not have any protection guarantee and is treated at par with claim of unsecured creditor as of now. In the case of government owned banks, it is implied that the government will not allow the bank to collapse.

The government has already signaled a rethink in the face of mounting criticism over the contentious clause.

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