Govt. To Allow Banks To Use Depositors’ Money To Save It From Sinking As Per The Proposed Bail In Provision

Though the motive behind the bail-in provision could be noble, it will create huge distrust amongst the public and the provision can be used for ulterior motives also.

The much-hyped ‘bail in’ provision has become a talking point in the whole country. It is a matter of grave concern for all of us.

Can banks still be trusted with our money?

What Exactly Is This Bail In Provision

The new proposed bill, Financial Resolution and Deposit Insurance has a bail in provision, which means depositors could lose control of their money, which basically means that the money of the depositors will be used to finance the sinking bank and save it from complete dissolution. In such a situation, the money of people deposited in the banks will go in thin air and they will be left with the amount covered by the 1961 Deposit Insurance Law only.

We have earlier heard banks being bailed out which means that entities like the government save banks from dissolution by putting in the taxpayer’s money.

But in this unprecedented case, the sinking bank will be saved by using the depositor’s money.

Reactions From Other Political Parties

CPM criticised the Modi government on the much talked about “bail-in” clause and alleged it aims is to pay the written-off loans of big corporates “by stealing small savers’ money”.

As per The Tribune, Sitaram Yechury of CPM has commented that, the government’s ‘bail in’ clause will limit the amount of hard earned money that depositors can get back from banks. This will have serious consequences on those with bank savings.

After writing off over Rs. 2 lakh crore for rich defaulters, with a ‘bail in’ clause, small savers’ money will now be stolen to pay for it?

Wasn’t the pre-election promise was of Rs. 15 lakh being credited in each Indian’s account?

First stealing happened through demonetisation and now through this?

bail in provision
Source: The Hindu

Has This Been Done Before?

Such a drastic step was used in Cyprus some years back.  As a result, more than half of the deposits of uninsured depositors (Deposits > €100,000) became nil. They did receive stocks in return but their value was a lot less than the huge loss incurred.

Also read: What Is A Guesstimate?

Labour Rights Will Also Be Compromised As Bank Employees May Loose Jobs

As mentioned in Scroll, Certain clauses in the proposed bill explicitly mention that employment can be terminated and also the compensation of bank employees be tweaked with when the bank undergoes through the stages of resolution.

This is a clear violation of the rights of labour and one can definitely expect opposition from trade unions regarding the stated issue.

RBI’s Control Will Diminish Too

Restructuring of banks is essentially a primary function of the RBI and by making a Resolution Corporation, the powers of RBI are being compromised. Since demonetisation, the powers of RBI being lessened has come into question time and again.

What Is The Government Saying In Its Defense 

The government has again stated that the proposed law will instil even more financial discipline onto the banks and act as a support to the Bankruptcy Code which was introduced so as to recover defaulted loans.

“Drafting is still on. A lot of corrections will take place,” Arun Jaitley told reporters after the issue was brought up by many media houses, given the public outcry.

Banks are supposed to safeguard the interests of the people but this drastic measure definitely isn’t in the interest of the common man.

Image Credits- Google

Sources: The Hindu, The Economic Times, The Tribune

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