Dinesh Kamath's Editorial 'Insure Bank Deposits' that was published in Newsband

Insure Bank Deposits

The Centre has quietly withdrawn the Financial Resolution and Deposit Insurance Bill, 2017. This is owing to the extent and intensity of public opposition to the proposed law. One provision that generated the fiercest criticism was the “bail-in” clause.

Banks depend on the funds of depositors to lend by providing credit to borrowers. The depositor is at risk from this law. He or She will naturally fear such a legislation. A bank failure can pose risk to overall financial stability. Policymakers should reappraise the existing framework for resolving bankruptcy scenarios among financial entities.

This anomaly must be addressed, especially at a time when several state-run public sector banks have been roiled by a series of frauds and high levels of bad loans. Prevent further erosion of public faith in the beleaguered banking system.

Maybe government / DICGC can collect a nominal amount proportionate to the deposit as insurance from the depositor which will fully cover the bank's liability to the depositor

With huge #NPAs looming and even increasing, #Bank #Depositors are worried; also the growing problem of deficits in banks and borrowing companies is worrisome. Farmers are not returning loans and defaulting industrialists seem to be their model. Politicians, to conceal their complicity in generating and using huge amounts of #BlackMoney for elections, living and bequeathing, are advising farmers to expect and demand loan waiver. Traditional credit/borrowing morality is in all round jeopardy and is just ushering us all into breakdown of the financial banking system.The increasing inordinate desire for power and getting elected among politicians is the culprit for this banking and loan non-return chaos.Workers and farmers are working hard; but the evil of manifold unearned incomes for the rich and power hungry politicians has been expanding. Bank deposits up to the level of 10-15 lakh Rs have to be insured, keeping in view increased cost of living and circulation of money in India.

The bail in clause is indefensible. A sovereign guarantee is implicit when banks are owned by the government. Absent that, the case for PSBs falls to the ground. When KFA's troubles were starting, Vijay Mallya got banks to convert part of their debt into equity, at a substantial premium. Those shares are now worthless. The government has been wise to withdraw this Bill. It might wish to think deeply about the future of the banking system and the role it should play in its ownership and management.

The bad law being scraped even at the moot level is good for the depisitors.But banks fumble to find out a way to write off the huge quantum of bad loans and clean their balance sheets for which they want depositor's money as scapegoat. Most of FD's in PSU banks are from retirees who park their savings to ensure security and returns .This would infuse confidence in them.