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Chandigarh 12, The proposed Financial Resolution and Deposit Insurance (FRDI) Bill will severely hit the middle class said Gurpartap Singh Mann, Spokesperson for Congress. He said that while Demonetization and poorly planned & implemented GST have hit farmers and business, the FRDI proposed by Modi Government will give a direct hit to middle class who keep their earnings in Fixed Deposits. The FRDI bill also hit the Cooperative Banking system, he said. This will directly impact rural credit system to agriculture.
Mann reminded PM that in India, maximum deposits come from small households who keep their hard earned money in FDs to earn some interests. Many retired people run their households only from the interest earned on the FDs (Pensions, gratuity etc). With this new Bill, depositors will lose faith in the banking system. Further they will have no other alternative place for investment to earn some interest. Where will the middle class go Mann questioned? He said that this Bill is being copied from American and European system which are Credit based economies while India is a Deposit based economy.
He said that the most critical clause in the Bill is “Bail-in” clause which will scare away the depositors from keeping their hard earned money in FDs. Hitherto there used to be a “Bail-out” by the Governments by pumping money to bail out stressed banks. However, in the “Bail-in” cause, the money of the depositors will be used to bail out the bank. He said that in brief, instead of Government, now the depositors’ money will be used to rescue the bank’s losses due to reasons like mismanagement, collusion etc. This is as per Section 52 of the proposed Bill, under which the depositors will lose their rightful claim to retrieve their savings in case of liquidation of banks and insurance companies. Thus, your money lying in the bank will no longer be yours he said.
The new enactment of BJP led Government will severely shatter the confidence of the customers/ depositors especially at a time when the non-performing assets (NPAs) or bad loans have hit an all-time high, with PSU banks writing off Rs.55,356crore in the first two quarters of the fiscal year 2017-18, which is about 54 per cent higher than it was last year. Two years back, when a Bank failed in Cyprus, the depositors lost almost 50% of their savings under the “bail-in” provisions, which are now intended to be replicated in India.
He further said that the proposed FRDI Bill will also badly hit the Cooperative Banks which have been setup for a particular purpose of helping the weaker section especially in rural areas. These banks step in to give credit in eventuality of crop loss, drought, etc. These Banks may not be doing financially good, but they have a specific purpose to cater to. After this Bill, all Cooperative banks will also come under the Financial Resolution Authority (FRA). The proposed FRA can simply take over any such bank on any rumor or news or even for political reasons where the Board of the bank is not politically conducive to the ruling regime. Cooperative banking system will collapse, which will hamper the agriculture sector severely. Currently, majority of the crop loans are extended by the Cooperative Banks.
The Financial Resolution and Deposit Insurance Bill, 2017, was first introduced in LokSabha in August this year during the Monsoon Session of Parliament, and is currently undergoing scrutiny by a joint parliamentary committee and likely to be placed before the Parliament in the coming session of Parliament in December 2017.
Just like demonetisation, the “bail-in” clause will not affect the wealthier sections of society. But locking up deposits of poor section of society in the name of bank re-capitalisation for writing off lakhs of crores worth corporate debt is slap on the face of crores, who use the bank less for seeking credit and more as a safe-house for their hard earned savings.
Mann further wondered whether this is yet another cover up for the damage done to the financial system by demonetization by Modi Government. He said that demonetization had pushed idle household cash into banking system creating severe stress on Banks who now have to give interest on these deposits while there is low or no off-take for quality loans.
