Vijay Kumar Gaba: "Bail-In" keeping people awake at night

"They also serve who only stand and wait."

—John Milton (English, 1608-1674)

Word for the day

Pervious (adj)

Open or accessible to reason, feeling, argument, etc.

Admitting of passage or entrance; permeable, e.g. pervious soil.

Malice towards none

In states representing more than 50% of the eligible voters, The Congress Party may not even come close to forming a government in next 10yrs at the least.

And some studio experts are intensely debating imminent revival of Congress Party's fortunes!

First random thought this morning

The incumbent government misses no opportunity to claim that national security and integrity is top priority for them and they have zero tolerance on this issue. They have allowed no opportunity to dissipate in showcasing their resolve behind the famous surgical strike in PoK.

There have been many instances where stringent action has been taken on students and artists under stringent Sedition law (Section 124-A IPC), even for making speeches inside university campuses.

But when they publicly accuse some senior politicians to be conniving with Pakistani elements, why do not they back it up with proceedings under Sedition law.

"Bail-In" keeping people awake at night

"Bail-in" is the latest in the series of "threats" presented by the incumbent government to keep people awake at night.

The concerns have arisen from some provisions of the Financial Resolution and Deposit Insurance Bill, 2017, (The FRDI Bill), which was tabled in Parliament this August, have given rise to concerns over protection for bank deposits in the proposed law.

The government recently implemented the Insolvency and Bankruptcy Code (IBC) that aims to promptly resolve the solvency issues of commercial entities in non-financial sector.

On the similar lines FRDI aims to make sure that if a bank, a Non Banking Finance Company (NBFC), an insurance company, a pension fund or a mutual fund faces insolvency, the matter could be resolved swiftly with least disruption to the financial system and various stakeholders. The resolution is proposed to be managed by a new entity namely Financial Resolution Corporation (FRC).

As per the proposed legislation, as and when a need for FRC intervention arises in case of a financial firm, the proceeds from the sale of assets of the failed institution will be distributed in the following priority order: (1) insured depositors (i.e., deposit amount upto Rs one lac insured by Deposit Insurance Corporation), (2) resolution costs, (3) workmen dues and secured creditors, (4) wages to employees, (5) uninsured depositors, (6) unsecured creditors, (7) government dues and (8) remaining secured creditors, (9) remaining debt and dues, and (10) shareholders.

The lower priority of repayment to uninsured depositors (i.e., deposit amount over Rs lac) is what is bothering a lot of depsoitors, especially middle class depositors.

The understand the issue in proper context, the following need to be noted.

(a) As of March 2017, about 62% of the gross household savings in India were in the form of bank deposits and another 25% was in the form of insurance funds.

(b) The bank deposits have seen a sharp jump from 44% on March 2016 to 62% in march 2017, due primarily to demonetization.

(c) Along with deposits, the financial liabilities of households in India have increased to the decade high of 31% (FY16 28%), post demonetization.

(d) The average term deposit in India is about Rs3,53,000 and average savings bank balance is about Rs36,000 as per the latest data available from RBI.

(e) About 70% of all schedule commercial banking bank deposits are held by SBI and Nationalized banks. Private banks hold about 24% and RRBs and Foreign Banks holding 4% each.

(f) The Deposit Insurance Corporation has paid claims amounting to Rs5000 crores since 1962 and has a balance of Rs80,000, sufficient to cover about 92% of all account holders.

(g) Approximately 30% of all bank deposits are insured, in line with the global standards.

(h) If the deposit insurance in enhanced from present Rs1lac limit, the coverage will improve dramatically.

So should someone be worried about his money being used to "bail-in" the bank or NBFC he has deposited money with?

I guess not now. More on this tomorrow.