The “bail-in” clause of the Financial Resolution and Deposit Insurance Bill (FRDI) has led to worries about the safety of bank deposits. It is different from a traditional bailout in which government’s money helps bank tide over the crisis.
In case of a bail-in, it is the bank’s own deposits that are used to rescue the bank or reduce its liabilities.
- According to Section 52 of the proposed Bill, depositors will lose their rightful claim to retrieve their savings in case of liquidation of banks and insurance companies. This option will be frequently exploited by the depositors as it will soon be the only option of getting sudden cash since economy is moving towards cash-less.
- Deposit withdrawal will become an option to escape from taxes and government confiscation. Banks would be in constant risk of cash crisis which will hamper their credit generation goal in a cash-less society.