Safety of bank deposits & BJP’s economy of trust

In the last days, I have been getting quite a few forwards of the SAME message on WhatsApp. The message told me that ONCE AGAIN (after demonitisation) our hard-earned money was in for a huge ditch by Arun Jaitley and Narendra Modi. This time another legislation on the cards to legally rob our bank deposits to feed the lazy, defaulting banks and save them.

For a while I thought it was another fake message; I asked a few not to forward such unverified messages to me. But then, some economist told that it was true, and such a bill was considered by our political dispensation unscrupulously feeding on our votes and our taxes in Dehli.

Then, I fond this article by http://www.scroll.in

Worries about the safety of bank deposits may further erode the economy of trust by 

The Big Story: Fear and savings

“This tsunami will wipe out your money lying in the banks,” warned a message that went viral on WhatsApp recently, spreading panic among depositors. It was referring to the new Financial Resolution and Deposit Insurance Bill, 2017, lying with a joint parliamentary committee at present and expected to be tabled during the winter session. Among the more alarming features reported about the bill was a “bail in” clause that would apparently empower banks and regulators to dip into public deposits to rescue floundering financial institutions. The government has now gone into damage control mode, with Finance Minister Arun Jaitley clarifying that the bill would not compromise the rights of depositors, that it would in fact mean additional protections. But the panic comes at a time when public trust in institutions and financial systems is eroding.

Indian financial institutions are currently groaning under the massive weight of non–performing assets, created when banks lend to clients who default on payment. According to estimates put out in the Financial Stability Report of 2017, India has the second highest ratio of non-performing assets among the major economies of the world. The FRDI Bill is among the many measures planned by government to prop up failing banks. It proposes to set up a Resolution Corporation, which would monitor firms, calculate stress and take the appropriate “corrective action”. This body ensures that government would have a larger say in functions previously performed by the Reserve Bank of India and other financial regulators, which could signal another instalment in the turf war between the central bank and the Centre. It also proposes to do away with the Deposit Insurance and Credit Guarantee Corporation, a subsidiary of the Reserve Bank of India created in 1971, which insures all kinds of bank deposits up to a limit of Rs 1 lakh.

The contentious “bail-in” clause, which involves the use of depositors’ funds to prop up flailing financial institutions, is in contrast to a bail out, where tax payers’ fund are injected into (https://scroll.in/article/861038/the-daily-fix-worries-about-the-safety-of-bank-deposits-may-further-erode-the-economy-of-trust)

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