Prime Minister Narendra Modi yesterday sought to allay the fears of bank account holders, saying their deposits would be safe and their interests would not be harmed in any way.
Addressing the annual general meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI), he said rumours were being spread by some sections about provisions of the proposed Financial Regulation and Deposit Insurance (FRDI) Bill under which the depositors would suffer.
“The government is trying to strengthen the banking system by policy initiatives on a daily basis. But on social media rumours are being spread about the FRDI Bill, which is completely opposite to the reality. We are trying to protect the depositors’ interest and the banks as well,” Modi said.
He was apparently referring to a raging controversy over a ‘bail-in’ provision in the FRDI Bill under which banks will be allowed to forfeit a major portion of deposits of account holders in case of crisis in the financial institution.
Opposition parties have alleged that the government could use people’s money to save financial institutions that have made bad lending calls. Banks are struggling under a bad-loan burden of around Rs10tn ($150bn).
Some financial analysts have suggested that a “bail-in”, as against a bailout in which outside money is used to save a financial institution, may eat into funds parked by depositors.
The prime minister said the previous Congress government had completely spoilt the banking system of the country. He said the biggest liability passed on by the previous government was the non-performing assets (NPA).
Modi said the last government had put pressure on banks and forced them to lend to influential people, which further led to NPAs. “The Commonwealth scam, 2G scam and coal scam, and the biggest scam – the banking scam – all happened during UPA regime.”
He said the government is working to create a system that is transparent and sensitive.
An online petition last week told Finance Minister Arun Jaitley: “Our hard earned money that we have saved for our children and for our future will be used to bail-in the banks.” It got over 40,000 sign-ups in just 24 hours.
Jaitley has already sought to allay concerns multiple times, saying the government will fully protect public deposits in banks and on Tuesday even hinted that the government is open to changes in the proposed bill, currently being reviewed by a parliamentary panel.
The finance minister has said that the government’s massive Rs2.11 lakh crore capital infusion plan for banks will strengthen them and there is no question of any lender failing. If it happened, he promised, the government would step in to “fully protect” the deposits made by customers, adding that “the government is very clear about it”.
The bill was first introduced in the Lok Sabha in August this year during the monsoon session and was referred to a joint parliamentary committee.
Meanwhile, referring to the Goods and Services Tax (GST), Modi said the government’s effort is to ensure that maximum businesses register for GST. “The more formal the system becomes, the more it will benefit the poor. It will enable easier availability of credit from the banks, and reduce cost of logistics, thereby enhancing competitiveness of businesses.”