Panic over proposed FRDI Bill is misplaced: SBI Ecowrap

Amid concerns being raised over the proposed FRDI Bill, an SBI research report on Thursday tried to remove prvalent confusion in the public domain. 

The SBI Ecowrap report said, "We believe, such a panic is misplaced. In essence, the FRDI bill in current form is almost equivalent to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act. The question we therefore need to answer is how do we clear the common doubts regarding the FRDI bill."
 
Seeking to clear the confusion in the public domain, the report said, "First, whether the concept of bail-in is justified in Indian context. Such strategy is similar to the strategies adopted by EU countries like Cyprus whose per capital income is 14 times higher than India. The average income of a vast majority of Indian depositors are modest and they rely on interest on bank deposits as a sustenance in the absence of a comprehensive social security."
 
"Second, the deposit insurance cover in India is the lowest across countries. Even some countries with similar per capita income like India have an unlimited deposit cover. It may be noted that in India currently banks pay a deposit insurance on the entire assessable deposits, but coverage is limited to only Rs 1 lakh. Our estimate shows that only 30% of the total assessable deposits are insured in India (75% in FY96)," the further explained.
 
It, however, added that "an analysis of deposit base of banking system shows two divergent trends: First, in terms of the number of accounts, 67% of the total accounts are less than Rs 1 lakh and 99% are less than Rs 15 lakh. So clearly, it seems on paper that the number of small depositors are adequately covered."