The message that is worrying people is that their deposits will be used to bail out their banks in case of a failure or their deposit can be converted for an unknown period offering 5% rate of interest. This provision, some analysts say will mean that the money which is insured will not be subject to a hair cut or bail-in. Some of its clauses are worrying financial experts. Govt. of India is going to abandon the corporation system which was introduced in 1961 during Nehru Govt.
The bill minimises the failure of financial as well as non-financial institutions like banks, insurance companies and stock exchanges by providing measures like "bail-in" option to revive them.
To quell growing fears and apprehension that the Financial Resolution and Deposit Insurance Bill, 2017, (FRDI) may result in people losing their hard-earned savings in case of a bank's failure, the finance ministry on Thursday said that the bill as introduced in Parliament does not "adversely" modify the current protections for depositors.More news: Maharashtra: Arrested brothel owner confesses to killing husband
The bill, which is with a parliamentary committee since August this year, has brought in a concept coined by the European banking crisis of 2008-09, called "bail-in" where a bank's depositors are forced to bear some of the burden of recapitalising the lender by having a portion of their deposits written off. The bank also will not have any liability to fulfill any of the guarantees given by it to the depositors. This bill is increasing public wrath and criticism. It said, the provisions contained in the FRDI Bill, do not modify present protections to the depositors adversely at all. The bank unions were opposing the Bill for this proposal and had said the objective is to heavily empower the new authority with sweeping powers to dismantle and erase public sector financial institutions. The government has already acknowledged that there is no reason for depositors to worry and their money is safe and government is committed to protect it.
According to Economic Affairs Secretary S.C. Garg, the FRDI Bill proposes to protect existing rights of the depositors. "There is no dilution thereof".
At present, bank depositors can be only protected to a limit of Rs 1lakh by the guarantee of Deposit Insurance and Credit Guarantee Corporation (DICGC), and remaining deposits over Rs 1 lakh are treated at par with claims of unsecured creditors, and in the event of liquidation of a bank, such depositor claims are only paid after preferential payments are made.More news: Bitcoin soars then falls as banks raise risk concerns
The Financial Resolution and Deposit Insurance (FRDI) bill, which is part of a host of banking reforms and enactment of laws, is now pending before the standing committee of parliament.
Rishabh Parakh is a Chartered Accountant and the Chief Gardener & Founder Director of Money Plant Consulting, a leading Tax & Investment Planning Advisory Service Provider.More news: Mata reveals that Ibrahimovic refers to himself as God at Manchester United
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