prpri Soliloquy on the impending FRDI Bill Demon 2.0 In The Making Soliloquy on the impending FRDI Bill Demon 2.0 In The Making

V. Ramkumar 

1. When the existing system is fine and there is nothing to fear about, then why need for a new Financial Resolution and Deposit Insurance (FRDI) Bill  in the present form and substance ?

2. If all is fine with the Bill, why suddenly the “Bail In “clause is introduced which means, that in case of a failure of a financial institution, the depositors money can be converted in to equity of the Bank/ Financial Institution which is in distress, meaning thereby that from the position of creditor the depositor would become the shareholder of the Bank and in the waterfall mechanism, as all know the equity share holder would be the last person in the queue in case of liquidation.

3. If the implicit guarantee of the government for public sector Banks remain unaffected, then does it mean, that the same would not be the case for private corporate sector banks ?

4. If the government is of the view that the Indian Banks have adequate capital and extant regulations   and oversight to ensure safety and security , then where is the need for another regulator in the form of “ Resolution Corporation” and would it not dilute the authority of RBI which presently is doing a fine job at least in the matter of regulation of Banks.

5. As it stands today, technically the depositors in the Bank are unsecured creditors and because of the implicit sovereign guarantee for the public sector banks, there is no worry about the safety and security of the deposits. But when this new bill is implemented, then there is a possibility that such sovereign guarantee would no longer be available and you can imagine the consequences of such an action.

6. In the case of Insolvency & Bankruptcy Code, 2016(IBC), which was primarily brought to fight the menace of NPA with the Banks and for the protection of financial creditors and the recovery of the bad assets, here in comes a new likely legislation which tries to protect the debtor (read Banks) instead of protecting the creditor(read depositors). Anyone can see the diametrically opposite stand taken by the government when it comes to the protection of the depositors vis-à-vis the commercial banks and all out efforts to “Bail Out” the stressed commercial Banks at the cost of depositors .Is this  DEMON 2.0in the making ?

7. When all of us are talking of financial inclusion, JAN DHAN, routing all transactions of the people through banks, cash less transactions etc., why at all anyone would keep the money in the Bank, if such legislation is contemplated by the Government and no wonder there is a sudden spike in the Post Office Deposits as on date.

8. In all fairness, the least the government can do now is that either remove the “Bail In “ clause or explicitly state that the “Bail In” clause would not be applicable to retail deposits  so that there would not be any panic in the system and in my opinion the government is playing with Fire.

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  1. MOHAMED ISMAIL, says:

    Well written article (questioner?). The Governments never disclose the hidden agenda behind any legislation. Only when it comes in reality, there would be huge cry among people (including those who adivsed for such changes). Again they make another amendment / law more particularly it seriously affects those who are in their first line. It is the fate of the Indian people.

  2. S R BAALAJI says:

    There is a hue and cry in the social and print media regarding this FRDI Bill and related fabricated stories of danger to small depositors.

    Actually the situation for small investor is better strengthened by this bill.
    . Way back in 1961 Deposit Insurance and Credit Guarantee Corporation Act, was put in place where the depositors can get Rs.1.00 lakh plus interest, irrespective of the amount of deposit they have made with the banks, if the banks run insolvent. The provisions are applicable even to-day. That is depositor can feel that he is secured only upto one lakh. Beyond that, he is helpless. The proposed bill does not usher in any new danger to the depositors. Instead, it is going to help the small depositor and small entrepreneurs. We will see how
    1, Since, the banks can not expect any bail out from the Govt, they have to manage their resources in a more responsible and profitable way. This will instill some discipline in the mind set of the banker as lender, because his responsibility is fixed. The banks will be naturally more proactive and more sensible in the years to come. So, instead of giving big advances, where risk is more, the banks will concentrate on small and medium advances, it will be a shot in the arm for the small entrepreneurs. In our country 82% of the GDP comes from only small and medium enterprises, as per the statistics of Federation of Indian Industries. So, naturally more care and attention needs to be reposed on only these units and not on any giant in any industry. This will help the economy to travel in the growth path.
    2. Secondly, the 1 lakh amount fixed some 40 and odd years back is not at all relevant to-day. Though the bill does not fix any amount, there are commitments from the Finance Minister to increase the said ceiling, so that it makes sense in the current scenario.

    In my opinion, it is a right step taken in the right direction at the right time. Our only concern can be about the ceiling to be fixed in the place of present level of Rs.1.00 lakh plus interest. Other than that, nothing to get panicky


    There is some under current invisible to us. The Govt is now made panic amongst public a norm. Aadhhar, so many issue of Gold Bonds, I feel something amiss.
    Why not make Directors from among Depositors also?

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August 2021