Insurance on depoits bill in winter session

The Bill says that in case of a bank failure, the proposed Resolution Corporation will “provide deposit insurance up to a certain limit”, which has not been specified. Under the existing (1962) law, all deposits up to Rs one lakh are protected by deposit insurance under the Deposit Insurance and Credit Guarantee Corporation Act, but that limit has been removed in the FRDI Bill.

How does it affect security of deposits?

In the wake of demonetisation, when citizens were cut off from accessing their own money in the banks with the daily cash withdrawal limit and long, serpentine ATM queues that proved fatal for about 140 odd Indians, the bail-in clause does send off the alarm bells. As per the FRDI Bill, the Resolution Corporation is entitled to convert a percentage of the deposits with a bank to bank shares and other forms of security, in the name of recapitalisation. This might end up cutting off the small depositors from their hard-earned money, since part of the amount in a savings account can be turned into a fixed deposit or rejigged to become part of bank shares, with the depositor given a miniscule stake in the bank’s doddering fortunes, effectively stalling him/her from withdrawing money as per one’s needs.