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The sudden u-turn by the Centre on the Financial Resolution and Deposit Insurance (FRDI) Bill 2017 has many implications on policy-making.
The Bill, which was ostensibly aimed at improving the financial system and strengthening banks, was dropped by the government amidst fear of public backlash.
Perhaps for the first time in the history of independent India, an aam admi was afraid of the safety of his/her deposits in public sector banks.
One could find many such people around — a pensioner who parked his life-long savings in a bank and an aged mother who kept asking others about her money being ‘taken away’ by banks.
While bankers are tight-lipped about the run on the deposits since the introduction of the Bill last year, it is now an open secret that some customers withdrew their deposits in the wake of the Bill.
As per Reserve Bank of India (RBI) data, aggregate deposits of all scheduled commercial banks fell from ₹116.84 lakh crore in April 2018 to ₹116.52 lakh crore by end of May 2018. The demand and time deposits also fell from ₹1,53,000 crore to ₹1,52,100 crore. While all this cannot be attributed entirely to fears over the FRDI Bill, it could still point to a trend.
Many senior bankers also see a link between increase in nation-wide cash-crunch a few months ago and the concern over the Bill.
These developments indicate a gross failure of a connect between policy-making and people. If the intention of the Government was to clean up the system, it should have gone for a massive education campaign with complete transparency. This was missed out in the whole exercise.
The gaps in the proposed Bill, such as lack of clarity in the ‘bail-in’ clause and confusion over fate of existing provisions of Deposit Insurance and Credit Guarantee Corporation Act also caused damage.
The worst-hit in the whole episode were commoners who tried to find answers to many questions they never thought they would ever ask. Seen in a larger perspective, the rather unprepared and hasty demonetisation of 2016, subsequent inability of banks to provide adequate cash to the customers as per the needs and the FRDI Bill have surely dented the image of banks and public trust in them.
The government must bring out more pragmatic and transparent policies to instil confidence among the public and introduce banking sector reforms in a less noisy manner.
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