The bail-in provision in the Financial Resolution and Deposit Insurance Bill (FRDI) has retail depositors worried. Outlook Money examines the contentious provisions.
A large part of household savings in India sits in bank deposits. According to the Reserve Bank of India (RBI), at the end of FY2017 ₹10,95,700 crore of household money was in bank deposits. This is perhaps the reason why there has been much panic among citizens after news trickled in, that the government’s proposed Financial Resolution and Deposit Insurance (FRDI) Bill could use depositors’ money to absorb some of the losses from bad loans.
The Bail-In Provision
The Bill has a ‘bail-in’ provision that allows the usage of creditors’ and depositors’ money to absorb losses in case a large bank defaults. This provision had recently caused uproar—evidently, depositors are worried that their money would be utilised to make good the losses caused by bad loans. Economists claim that this practice is similar to the ones deployed in some European countries and Cyprus, but their capita income is 14 times higher than India’s. In India, there is no concept of social security and incomes are modest. As a result, a vast number of Indians rely on interest income from their deposits. Therefore, it is hardly surprising that the country’s citizenry is concerned about the development.
Is Deposit Insurance Enough In India?
This story is from the January 2018 edition of Outlook Money.
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This story is from the January 2018 edition of Outlook Money.
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