New Delhi: The economic research department of State Bank of India, SBI Ecowrap has cleared the confusion on the proposed Financial Resolution and Deposit Insurance (FRDI) Bill.
Zeebiz.com, citing the SBI Ecowrap report, said that the proposed Financial Resolution and Deposit Insurance (FRDI) Bill seeks to establish a ‘Resolution Corporation’ to monitor financial firms (along with regulators), and resolve them in case of failure.
"The resolution methods of FRDI Bill which spread confusion among depositors is the ‘bail-in’ clause, where the financial firms/companies issue securities in lieu of the money deposited," the report said, adding that "in case the firm’s financial situation deteriorates, deposits could be converted into securities such as shares in the bank."
Further elaborating, the report said, "This proposed ‘bail-in’ clause has raised a lot of concern among depositors who are worried that they may lose their deposits with banks. However, the truth is that the risk is much less in the proposed bill."
"Currently, DICGC provides deposit insurance of up to ₹1 lakh and rest of amount is forfeited in the rare event of a bank failure. Data on Cross Country Deposit insurance Coverage limit shows that Deposit insurance coverage in India is one of the lowest at Rs 1 lakh / $1508 / 0.9 times India’s per capital income. Even if we apply the average of how many times it is of per capita income across countries, the deposit insurance coverage rises to Rs 3.5 lakh. The FRDI is contemplating an increase," it added.
