One of the bills among an entire lot of banking reforms is to endorse the new law which frames the rules for the judgment of failing banks. All these details were leaked to social media which made worry ripple across banks in the country. This bill was approved by the Central Government in the month of June 2017.
If the Indian government does go ahead with the passing of this bill, the Resolution Corporation, which is the proposed rescuing body, is the shoe-in for a large amount of “bail-in” power.
This corporation can summon these “bail-in” conditions for saving a bank or a financial institution which is on the threshold of collapse. The corporation will be established under the Financial Resolution and Deposit Insurance Bill.
Used to save a bank or financial institution
But what does this “bail-in” method signify? For those not familiar with the financial lexicons and terms, the “bail-in” method is used to save a bank or financial institution, is on the verge of failure by allowing its creditors and depositors take a defeat on their shareholdings or deposits.
A “bail-in” is the exact contrary of a bail-out, the latter basically involves the saving of those failing banks by a third party; it is more or fewer governments using the taxpayer’s money.
More common than bail-ins
Of course, bail-outs are much more common than bail-ins, but in recent years, due to demonetization issues as well as massive bail-outs performed by the government, the government now needs the depositors as well as investors (in the bank) to take a defeat before the taxpayers.
On the other hand, the Indian government under Prime Minister Narendra Modi has integrated the bail-in stipulation under the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, in the fiscal year 2017.
At present, the Bill is currently under assessment of a select Parliamentary Committee. The government is planning to initiate the Bill in the Winter Session of Parliament.
Powers of the Resolution Corporation
Under Section 52 of the FRDI Bill, the powers of the Resolution Corporation are so wide-ranging that it can withdraw the legal responsibility of a bank — this means that it can say publicly the bank doesn’t owe you any money though you have deposited your hard earned money with it.
Under the equivalent section, it can adjust or alter the structure of accountability — the importation of it is that if you have deposited for example 10 lakh INR for 5 years meaning to use the money for your child’s graduation or marriage, the corporation can exchange it into a locked-in deposit of 20 year tenure without your approval. The Bill also has a condition that allows the Resolution Corporation to excuse the failing bank for fulfilling its compulsions under a contract or an agreement.
In hindsight, it is quite unreasonable for the Indian government to anticipate for depositors to bail out the struggling banks, especially so when they do not get a share of the profits being made. And this procedure, of course, goes against the very standard of justice.