Watch Out. Your Fixed Deposits may be in Danger!

By Ashwin Tombat
01 January 2018 14:19 IST

How safe are our bank deposits? This is the question being asked in social media forums after the central government has drafted the Financial Resolution and Deposit Insurance (FRDI) Bill. This proposed legislation was to be passed in the ongoing session of parliament, but public pressure has forced the Centre to refer the Bill to a joint Parliamentary Committee. It is likely to be introduced in Parliament during the budget session in early 2018.

What is this legislation and why should we all be aware of it? As the infamous Vijay Mallya episode has shown, Indian banks have made massive loans to large industrial groups that are in a deeply difficult financial position, and are therefore unable to repay these loans.

These bad loans, known as Non-Performing Assets (NPAs), amount to around Rs10 lakh crore, roughly twice the Gross Domestic Product (GDP) of Sri Lanka. According to 'The Times of India', they amount to around 9.85 per cent of all loans given by Indian banks. The only major countries with worse ratios of bank NPAs are Portugal, Italy, Ireland and Greece.

In 2008 came the worst worldwide economic disaster since the Great Depression of 1929. High-profile bankruptcies took place in the US. Lehman Brothers, the oldest US Investment Bank, filed for bankruptcy. The US government and the European Union then came up with bail-out packages worth thousands of billions of dollars to save big banks and insurance companies.

This was taxpayers' money being used to save private banks and insurance companies. Western governments then introduced mechanisms to regulate and strengthen financial institutions. India has followed. The over-120-page FRDI Bill seeks to set up a Resolution Corporation (RC) to monitor financial institutions, anticipate risks of failure, take corrective measures and resolve any failures.

What's wrong with that?

Several things, including that it completely dilutes the authority of the Reserve Bank of India (RBI). But the provision that has set social media ablaze is the 'Bail-In' provision.  This is the opposite of a Bail-Out, which involves use of government funds or another agency to help a bank come out of financial distress.

Bail-in provides for the RC to allow banks to use the depositors’ funds by cancelling the liability owed by them or convert it into equity (shares of the bank) in the event of their failure. In short, if your bank is likely to fail, it can confiscate your fixed deposits to save itself from bankruptcy.

If the government has its way, this could soon become law. That is why so many people — especially senior citizens and NRIs, who depend on fixed deposits — are so angry and agitated. Finance Minister Arun Jaitley and, later, Prime Minister Narendra Modi have both assured citizens that their deposits will be 'safe' even after this Bill becomes a law.

But neither of them is saying exactly how these deposits will be safeguarded.

Remember Notebandi or Demonetisation? That was when you could not get access to your hard earned money kept in banks, because there simply weren't enough bank notes. That was temporary. With Bail-In, it could become permanent.

The Bail-In provision is there in most advanced countries. In fact, the International Monetary Fund (IMF) and the World Bank wants India to make its presently proposed Bail-In provisions even more stringent and anti-depositor.

The difference is that in the US, all bank deposits up to $100,000 (Rs67 lakh) are insured. In India, insurance on deposits is only Rs1 lakh. Since around 67 per cent of fixed deposits are of less than Rs1 lakh, the government seems to feel the FRDI Bill will not adversely affect small depositors.

But if you have fixed deposits of more than Rs1 lakh, you definitely need to worry.

You need to speak up and demand that the Bail-In provision in the FRDI Bill should be dropped. Or, ask for India to follow the Singapore government’s proposed financial resolution regime, in which all deposits and senior citizens' debt is specifically excluded from Bail-In.

First published on Sunday 31 December 2017

Disclaimer: Views expressed above are the author's own.

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Ashwin Tombat

Ashwin Tombat has been the Editor of Gomantak Times and Herald. Worked as an Associate Editor of national magazine Gentleman in Mumbai, before shifting to Goa. Loves sailing, also participates in Marathons. Has worked as an activist in students's union and trade unions in Maharashtra. Also an artist of Street Theatre during student days.

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Previous Comments

First they came for PROPERTY (more than one property)

and then they came for BANK LOCKER (Jewellry)

and now they are coming for BANK ACCOUNT (hard earn saving money)!

- Jack De Goan, Goa | 20 th January 2018 22:06


First BJP said to all Indians to open bank account to get 15 Lakhs deposit in each account.

Then suddenly BJP brought Demonetisation and told Indians to deposit their hard earn money in their own bank account.

Now they are bringing FRDI to withdraw all your hard earn money from your bank account.


- Jack De Goan, Goa | 03 rd January 2018 15:38


Thanks a lot for publishing this article which is an eye opener for all Indians who have FD's in their banks.

I hope that people realise what's in store for them if the present Gouvernment goes ahead and declare it as a law just like in the case of demonetisation.

- Custodio de Souza, France | 03 rd January 2018 15:26


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