Gripped by panic, people rush to banks to withdraw money

Nellore: The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, is creating panic among customers of scheduled banks, many of whom are withdrawing their deposits from the banks with a kind of mass hysteria engulfing at several places in the district. In some neighbouring district, along with bank accounts, some depositors are withdrawing money from ATMs too on a daily basis.

Customers are fearing that their money will not be returned as and when they demand closure of fixed deposits. Even ATMs in some places are being drained due to the apprehensions.

The fear is mainly regarding Section 52 of the bill, which mentions that a depositor’s money can also be used in the resolution mechanism for banks, in times of financial crisis. This is also being referred to as “bail-in” provision, i.e. using money in bank, as against “bail-out”, hither to adopted system in rescuing banks with money from outside, like government’s.

In fact, money which is insured cannot be touched but the rest of the money can be deployed under bail-in clause, experts say. However, bail-in can be invoked only when customer gives prior consent at the time of signing the deposit forms. Currently, bank deposits up to Rs 1 lakh only are insured in case of a bank going bankrupt.

“As soon as the news of the provisions of the bill came to light, customers began visiting the bank for withdrawing money citing personal reasons such as marriage of children, construction of home, medical treatment and repayment of old loans, etc., Our efforts to convince them about the safety mechanism for their money did not bear fruit. Still, the apprehensions are prevalent,” said a senior manager of an Indian Bank branch in the district.

He explained that as of now, there is no need to be panic as few banks in the country in the last 50 years were liquidated. This is similar to the panicky situation in November 2016 following the demonetisation of higher denomination notes. In some places in rural areas, customers are standing in long queue lines to withdraw their money.

According to the proposed bill, the Resolution Corporation (RC) has a right to resolve the stressed assets of firms by various means. There are means such as recapitalisation or utilisation of in-house resources as is being proposed in the new bill. Customers worry about the second option that their deposits would be barred from being withdrawn keeping financial status of the bankrupt bank in view as part of Resolution Mechanism.

“The fear is due to clause which empowers the Resolution Corporation to rescue a failing financial institution with the help of creditors’ and depositors’ money. Though this is being done as part of government’s mechanism to protect bankrupt institutions, we may fall prey to the situation as we save small money for our urgent needs. If it is barred from being withdrawn, how can we meet our urgent needs,” asked a retired teacher of a municipal school, Y Mohan Rao.

An accountant of Kavali town who looks after GST for small firms and also a strong follower of RSS angrily asked, “Why this is being done on a regular basis leaving the common man to their fate? Every step being taken by the government is proving to be detrimental to the common man since demonetisation. Rulers will face the wrath of the common people if they don’t realise the consequences of their decisions.”

By P V Prasad