Depositors' money: drop 'bail-in' clause

The government's move to bring in legislation that will allow banks to use depositors' money to save themselves from financial failure and bankruptcies has caused serious concern among account-holders. The proposed Financial Resolution and Deposit Insurance (FRDI) bill, which has been introduced in Parliament andis being studied by a standing committee, has a "bail-in" clause that will allow ailing and sinking banks to survive at the expense of account-holders. Public sector banks are weighed down by huge non-performing assets (NPAs), a result of their own failures and mismanagement. The Modi government has already announced a Rs 2.11 lakh "bail-out" for banks, for which public funds will be used. That itself is wrong, but no depositor is individually affectedly by that, though all taxpayers are generally hit. But the bid now to use depositors' money to save the banks is much worse as it will hit them directly.  

At present, deposits in banks are insured up to Rs 1 lakh by law. A clause in the proposed bill will enable banks to cancel this insurance. A new body, called the Resolution Corporation, will have control over deposits in banks. The bank will be able to change the insurance limit partly or fully, and arbitrarily change the term of deposits, amend interest rates and even issue bonds in lieu of cash on demand. The Reserve Bank of India has actually not allowed any bank to go bust till now, so depositors' money has been safe so far. But that position will change when the RBI is no longer supervising the resolution of banks' financial problems and the new body is in charge.  

People keep their hard-earned money in banks because they think the government stands as a sovereign guarantor of their deposits. This trust will be violated if the proposed law comes into force. People should be able to withdraw their money as they wish and according to their requirements. The government's current move is worse than the arbitrary demonetisation decision which denied people the use of their money and their control over it. Finance minister Arun Jaitley has said that depositors' money will not be affected, but assurances are not enough. The banking sector has been weakened by big and politically-connected defaulters, ordinary depositors must not be victimised for their fault. Political parties, consumer groups and ordinary depositors have strongly opposed the government's move. The proposed provision should be withdrawn forthwith. The insurance limit should actually be raised, as it was set over 25 years ago. People must now be doubly vigilant against the continuing undemocratic attempts to take away their rights. Oh, how far we have come from the time Narendra Modi promised to bring back all the black money stashed abroad and deposit it in our accounts!