Visakhapatnam: N. Koteswara Rao, a retired government driver from Srikakulam district, has withdrawn his fixed deposits from a bank. He did not give any reason to the branch manager for the cancellation. But, he informed his family members that he was afraid of the Financial Resolution and Deposit Insurance (FRDI) Bill.
In case a bank fails to repay the deposits of its customers, the government should ‘bail-out’ the financial institution to protect the interest of the depositors in the existing scenario of banking sector. The proposed bill asks the financial company to ‘bail-in’ by itself with the holdings of its creditors and depositors on the brink of failure. This has created confusion among depositors, particularly in rural areas.
According to experts, there is not much reason to worry about deposits since public sector banks will continue to have a long run with a lrge number of customers. Private sector and co-operative banks are also running in profits. Though there won’t be any immediate effect of the bill, it will be a challenge for weaker banks.
In the place of the Deposit Insurance and Credit Guarantee Corporation (DIGC), the FRDI Bill envisages setting up a resolution corporation to provide an insurance cover up to a maximum of Rs1 lakh on each fixed deposits at premium charge of Rs100 per annum. It is not clear whether the insurance cover would be increased beyond Rs1 lakh. Visakhapatnam Cooperative Bank chairman Ch. Raghavendra Rao said that insurance cover of Rs1 lakh was made in 1980.
Even after decades, that limit has not been extended. The bill is drafted in the interest of the government. “When compared to other countries, Indian banks are strong. If there is a trouble, the Reserve Bank of India (RBI) has merged the weaker bank to a stronger bank.” he said.
