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Wednesday, December 20, 2017

Letter To Mr. Arun Jaitley Finance Minister

Subject: bankpensioner LETTER TO FM ON DEPOSIT INSURANCE BI 2017 BY AIBRG

                                                                                                        Copy of letter addressed to FM, by GS,AIBRF vide their Ref:2017/129                                                      dated:18.12.2017 is furnished here under for information. In

Shri Arun Jaitley
Honourable Finance Minister
Government of India
New Delhi.

Respected Sir.

            Re: The Financial Resolution & Deposit Insurance Bill, 2017
            Re: Provisions affecting depositor interest adversely
                  -----------------------------------------------------------------
We find that Union Cabinet has approved the Financial Resolution & Deposit Insurance Bill,2017 and the same was introduced in the Parliament during the last session. Presently, the bill is referred to the Joint Parliamentary Committee  under the Chairmanship of Honourable Member of Parliament, Shri Bupender Yadav for review of provisions of the bill and suggesting modifications based on public feedback for consideration of the Parliament.

2. While we welcome reforms in financial sector to enhance efficiency of the system for faster economic growth, we feel deeply concerned on some provisions of the bill which adversely affects interest of the depositors, common men and senior citizens and spreads message in the public that keeping savings in the form of bank deposits in banks including public sector banks  is no longer  safe.

3. Your Kind attention on the following points are invited which we feel need to be suitably reviewed and modified before it is passed by the parliament and becomes law.

Provisions of the bill indicates that public sector banks may also face liquidation proceedings in case of adverse financial performance of these banks and may be referred to the proposed Financial Resolution Corporation for bail in plan. This provision has sent wide spread  message among the public in particular depositors that  keeping deposits in public sector banks is also not safe and their saving may face serious erosion in value in case of liquidation proceedings and bail in plan considered for  the public sector banks. Such message and feelings denote  marked change in the confidence level and perception of the depositors who keep their 63 per cent  heard earned savings in public sector banks with the time tested confidence  that their savings in these banks enjoy sovereign guarantee and their money is 100 per cent safe under all circumstances. At present, no depositor irrespective of size of the deposit bother to examine balance sheet of the bank before depositing  the amount. Such shake up of confidence of the public in bank deposits will seriously affect internal resources mobilisation Programme  and thereby economic growth of the country.

We find from provisions of the bill that DICGC cover of Rs. 1 lakh available to bank depositors on automatic basis presently will be withdrawn and the proposed corporation/ bank management will decide the quantum of deposit cover to be provided  for deposits for each bank. This provision will create serious doubt about safety and security of their deposits in case of liquidation proceedings.

(1)






The provisions indicate the depositors’ money as unsecured creditors may also be part of bail in scheme and the depositors may also be called upon to make sacrifice as a part of liquidation/ rehabilitation plan.

We find that the proposed Financial Resolution Corporation will play dominate role in formulating bail out scheme/ liquidation proceedings for banks. This situation will undermine and dilute role of Reserve Bank of India as regulator and  thereby undermine the confidence of bank  customers.

3. We are of the strong view that the above provisions in the bill are highly prejudicial to the interest of the depositors and may destabilise time tested and powerful saving instrument of the country in the form of bank deposits. We lodge our protest against the above provisions and request you to review/ modify the above provisions before passing the bill. All India Bank Retirees Federation ( AIBRF) represent more than 1.70 lakhs bank retirees who keep large part of their savings in the form bank deposits and manage their day to day life on interest income from bank deposits.

4. We also request you to consider and accept the following suggestions to strengthen the saving instrument of bank deposits to increase saving rate of the country which needed for financing for speedy economic growth.

DICGC cover of Rs. 1 lakh was fixed almost 5 decades back. It should be suitable enhanced to Rs. 10 lakhs for the depositors and Rs. 30 lakhs for senior citizens.  
Interest Income on bank deposits should be exempted up to Rs. 50000 for senior citizens and Rs 30000 for other depositors.
Senior citizens should be given benefit of monthly compounding on term deposits instead of present system of quarterly compounding.
All service charges levied by banks should be charged at 50 per cent of normal in case of senior citizens.
Special deposit scheme for retirees/ senior citizens  should be introduced giving annual interest of 9 per cent with monthly compounding.

3. AIBRF also join organisations in particular bank unions who have launched agitational programmes against the controversial provisions of the bill and support their stand on this issue.  
    
                  With Respectful Regards,    
    
                                                                      Yours Sincerely,
                                                            
                                                                    


                                                                      ( S.C.JAIN)
                                                                GENERAL SECRETARY
C.C to (1) Finance Secretary (2) Banking Secretary.


ON this issue Today an article has been published in Times of India which answers some questions which are coming in minds of all depositors

FRDI Bill 2017: What does it mean for your money-Times of India 20.12.2017




The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 created much mass hysteria among bank customers. We answer the most important questions concerning them.

Q: What is FRDI Bill?

A: The Financial Resolution and Deposit Insurance Bill (FDRI) bill aims to set up a resolution corporation which will monitor financial companies, categorise them as per their risk profiles and step in to prevent them from going bankrupts by writing down their liabilities.

Q: Why is it being feared?

A: The fear stems from the Bill's bail-in clause which empowers the resolution corporation to rescue a failing financial institution through the help of creditors and depositors money. Bail-in is, however, one of the many options to rescue a financial institution on the brink of failure.

Q: How much of depositors' money can be used to bail-in?

A: Barring money which is insured, rest of the money can be subjected to bail-in clause. However, in order to utilise this money, a bail-in clause has to be incorporated at the time of making a deposit. Even today, only a small amount of Rs 1 lakh of bank deposits is insured in case of a bank going bankrupt.
Q: Isn't insurance coverage of Rs 1 lakh for deposits quite less?

A: Yes, but that might change with resolution corporation replacing DICGC and setting up new deposit insurance limit.

Q: How can you reduce your risk?

A: As of now, there is is no need to panic as banks in India in last 50 years have hardly been liquidated. However, you can cut your risk by diversifying your deposits across banks if you hold large sums above the new insurance limit.

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Link to Times of India

Another interesting article today appeared in LIveMint which highlights how the proposed bill provides greater protection to depositors compared to existing protection available under DICGC act.

A few highlights of the Bill, and how these will enhance confidence in the system, are worthy to note:
• First, it provides for the Resolution Corporation to define objective criteria for classification of banks and other financial service providers into five categories of risk, ranging from low to critical. This would ensure that there is a comprehensive mechanism for assessment, monitoring, and dealing with imminent failures before rather than after they occur.
• Second, it fixes accountability and provides authority to act in a time-bound manner to ensure quick resolution. Lengthy resolution processes due to lack of enabling provisions to make decisions would erode customer confidence in the system, result in a run on the banks, and destabilize the sector.
Third, it provides a better chance for the depositor to recover her money if her bank were to fail. Presently, each depositor is protected up to a limit of Rs1 lakh by the guarantee of the Deposit Insurance and Credit Guarantee Corporation (DICGC). As of 31 March 2017, 92% of deposit accounts were fully protected by this mechanism, as these accounts are with deposits below Rs1 lakh. Uninsured depositors are presently treated on par with claims of unsecured creditors, and rank below preferential payments, which include government claims. The FRDI Bill improves the order of priority for uninsured deposits by placing them above unsecured creditors, government claims, secured creditors for any amount unpaid following the enforcement of security interest; and any remaining debts and dues. The Bill also continues the deposit insurance mechanism.
• Fourth, it provides power to clawback performance incentives paid to senior management of a failed bank. This would ensure that the people responsible for the failure do not benefit from their decisions that led to it.
• Fifth, it provides for a wide range of resolution instruments, such as bail-in, bridge institution, and run-off entity for insurance. These are in addition to the existing tools used such as merger and sale. While sale or merger of the failing entity would be the most preferred mode, it may not always be possible. Neither would the closure of the bank or insurance company be an option as it may be performing a critical function. For example, in run-off, the remaining claims of a failed life insurance company would be serviced through a specially chartered “run-off entity” throughout the duration of the policies. Bail-in is a tool that enables quick restoration of solvency. However, since it entails write down and/or conversion of certain liabilities into equity, there are safeguards included to ensure that it is used in exceptional circumstances. Bail-in can only be used in respect of specific liabilities, which are specified in the regulations framed through a consultative process. These liabilities would be known upfront and well before the bail-in tool is exercised.
Think of the FRDI Bill as putting together an intensive care unit to deal with critically ill patients. The idea is to not let the patient slide into slow death. Instead, the Bill safeguards depositors by protecting the value of the failing bank through speedy diagnosis and a deliberate resolution plan.

Smita Aggarwal is a director at Omidyar Network


One article published in Financial Express has also tried to porved that there is no risk to depositors by proposed FRDI bill 2017

Apart from the fact that no democratic government can possibly survive appropriating people’s money—unless it is black money, and that is a different procedure altogether—since this will put the entire banking system at risk, where is the question of doing this? It is true the government hasn’t done a great job of explaining how the Bill helps depositors and why their money won’t be ‘bailed-in’, but critics haven’t applied their minds either.

Link To Financial Express

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