The controversial Financial Resolution and Deposit Insurance (FRDI) Bill, which is under the consideration of a joint committee of the Parliament, has already left the depositors worrying about the safety of their deposits. The proposals in the bill could ultimately put additional burden on people who may have to shell out money to keep their deposits safe.
If the FRDI Bill is passed in its present form, a Resolution Corporation (RC) will be formed to regulate the risk of insolvency of financial institutions and it will fix the threshold for deposit insurance in consultation with the Reserve Bank of India.
The current Deposit Insurance and Credit Guarantee Corporation Act, 1961 (DICGC) ensures that the deposits upto Rs 1 lakh would be safe at the event of bank failure. The ceiling of Rs 1 lakh was fixed almost 25 years ago, taking into consideration the status of deposits at that time when most of the accounts had only less than Rs 1 lakh as savings or deposits. Considering the increase in the volume of deposits and the money being kept in bank accounts, the FRDI bill suggests the government to increase the insured amount in deposits.
As of now, banks have to pay a premium of about 10 paise per Rs 100 insured. Any increase in this level would raise the amount of premium that banks will have to pay. If the government raises the limit to Rs 15 lakh from the present Rs 1 lakh, the premium also will go up. The banks can afford to bear the higher premium cost at present. But if the premium and the amount of deposit insured go up in the future, the customers may have to pay for it after a certain limit. So soon, the depositors may need to pay for keeping their deposits safe.
The FRDI Bill 2017 was introduced in the Lok Sabha in August 2017. The bill deals with all the issues that can come forth in case financial institutions including banks, NBFCs, insurance companies, and exchanges go bankrupt. The government on Tuesday assured bank depositors that their money will remain insured under the FRDI bill and the RC can raise the deposit insurance amount.