Will FRDS-2020 Get Timing and Details Wrong Again? Backdoor ‘Bail-In’ Vague and Worse
We are already into 2020, so the ‘secret’, re-worked Financial Sector Development and Regulation (Resolution) Bill, 2019, or FSDR, is already outdated. There is immense speculation that the new Bill will be pushed through the Cabinet and introduced in the Budget session of Parliament. But will the government trigger panic again by fudging the bail-in provision and getting the timing all wrong? 
 
The earlier version of this controversial Bill—Financial Resolution and Deposit Insurance Bill, 2017 (FRDI)—was withdrawn in August 2018, “for further comprehensive examination and reconsideration,” after the ‘bail-in’ provision triggered major panic among depositors. Three years later, the situation is actually worse. Consider this.
 
Yes Bank, India’s fourth largest private bank, is struggling to recover from the dubious banking of its founder promoter Rana Kapoor. The Bank is unable to raise funds from credible sources because investors believe that it is still not sharing the full extent of the problem. Meanwhile, a drumbeat for nationalisation of the Bank looted by private sector industrialists has started.  
 
In December 2019, a Macquarie Research report, titled “Nationalisation Looms”, pushed for its merger, presumably with a PSB (public sector bank). The report pointed to the forced merger of Global Trust Bank with Oriental Bank of Commerce, nearly 20 years ago (after Ramesh Gelli’s dalliance with scamster Ketan Parekh and various industry houses, including the Zee Group, brought it to the brink). In 2013, United Western Bank, which was under moratorium, was merged with IDBI Bank. The merger was proposed in 2006. Before that, there have been 26 forced mergers with PSBs since nationalisation. 
 
Well, IDBI Bank did not recover from this disastrous move; it has had to be bailed out by Life Insurance Corporation of India (LIC) which acquired a 51% stake. IDBI Bank remains under ‘Prompt Corrective Action’ (PAC) by the Reserve Bank of India (RBI) and the cost of keeping it afloat is massive.
 
On 22 December 2019, a PTI report said, “Earlier this month, Finance Minister Nirmala Sitharaman said the recapitalisation was done by the government by infusing Rs21,157 crore into IDBI Bank since 2015; after we came back to power and LIC infused Rs21,624 crore. So both, put together, have given Rs42,781 crore to the Bank. This has helped reduce the net non-performing assets (NPAs) from a peak of 17.3% in September 2018 to 5.97% in September 2019.” 
 
The cost of this bailout has been a stupendous Rs42,781 crore, and counting, until it finally comes out of PCA.
 
On 13th January, Andy Mukherjee of Bloomberg suggested that State Bank of India (SBI), our largest PSB should be prevailed upon to ‘swallow’ Yes Bank. This was after yet another board member resigned making a string of allegations and demanding a forensic audit. He wrote, SBI “can always be given some taxpayers’ funds to help with the indigestion.” But, unlike LIC, SBI is a listed entity. What about the blow to its shareholders? Why should they be forced to take a blow to rescue a private bank, whose founder gets away scot-free along with the beneficiaries of his dubious lending?
 
The buck for Yes Bank stops at the RBI. A banker, who thinks Yes Bank is in a ‘death spiral’ says, “RBI needs to be hauled over the coals here. Many of us bankers knew that the numbers Yes Bank and Rana Kapoor were reporting were absurd. How did the RBI sleep for so long?”
 
He also says that Yes Bank is unable to get new funding because of fears that it is still hiding some of the bad loans. The same banker says that Yes Bank still refuses to provide “written confirmation on our due diligence questions regarding asset quality” and offers only verbal assurances. Private equity funds, who could have been potential investors, share this view. Isn’t it ironical that lenders and investors continue to suspect that Yes Bank is hiding more skeletons in its cupboard long after the R Gandhi, a former RBI deputy governor, was appointed to the board in May 2019?
 
Yes Bank responded to this in a press statement on 15 January lambasting “unsubstantiated and irresponsible press/social media speculation.” It ‘firmly’ assured customers about its ‘liquidity and stability’ and asked them to ‘pay no heed to these unfounded reports’.  
 
Meanwhile, RBI, which ought to clarify the situation and calm customers, remains a silent spectator. It remains just as silent about the fate of Punjab and Maharashtra Cooperative Bank (PMC Bank), which was defrauded by Housing Development and Infrastructure Ltd (HDIL) to the tune of Rs6,700 crore.
 
In an interesting twist, Nationalist Congress Party (NCP) supremo, Sharad Pawar met minister of state for finance, Anurag Thakur, on 13th January about reviving the Bank, when the ruling Bharatiya Janata Party (BJP) has been cold to every suggestion about a revival.
 
This is ironical because HDIL and the equally beleaguered Dewan Housing Finance Ltd (which are de-merged and separate entities of the same Wadhawan family) are considered close to NCP leaders by realty industry sources.
 
Will the government go ahead and introduce the FRDS Bill in this environment? The need for a financial resolution process and even a ‘Resolution Authority’ (RA) for the financial sector is undeniable -– but the weakest part of the ‘secret’ draft remains the section about deposit insurance and safety of depositors’ money. 
 
The Bail-In Fudge
The proposed RA under FRDS will include all five financial regulators who have repeatedly failed in their supervisory role in the present financial crisis. So there is no provision for any regulatory accountability in the new set up, except to pass the buck on to customers and depositors.
 
The briefing note, prepared by economic affairs secretary Atanu Chakraborty, is also very economical with the truth about the ‘bail-in’ provision. 
 
Bail-in is a process where depositors’ money above a certain threshold (usually covered by deposit insurance) is converted into equity to recapitalise a failed bank. This is to ensure that taxpayers’ funds are not touched for bailing out failed banks and financial institutions. 
 
The secret note, reviewed only by Moneylife, lists three major differences between the FRDS 2019 and FDRI 2017. Here is what the note says and why it is worrying. 
 
1. “The much criticised bail-in provision has been removed and instead Resolution Authority would be empowered to cancel or modify liabilities subject to safeguards. The insured deposit liabilities would not be cancelled or modified.” 
 
Well, even internationally, insured deposits or those below a minimum threshold are not touched by ‘bail-in’; otherwise, people will not trust banks. Further, if the RA is allowed to ‘cancel or modify’ liabilities to depositors, it is just another way of saying that the deposits won’t be paid (cancelled) or can be converted (modified) into equity capital. In effect, there is no change whatsoever. 
 
2. “Simultaneously, a decision to increase the deposit insurance cover from Rs. 1 lakh to a higher amount may be taken and that increased amount would be the floor for deposit insurance cover. The Resolution Authority would have power to modify this deposit insurance limit.” 
 
This vague assertion is a whole new can of worms. Insurance of any kind is based on actuarial science which examines data about claims over a period of time to determine premium. The FRDS Bill says that banks, including cooperative banks, will pay risk-based premium and, yet, does not bother to specify how much of the deposit will be covered by insurance. It also makes the stunning suggestion that the RA can ‘modify’ this deposit insurance limit. Will it be done on a case-by-case basis? 
 
Experts tell us that the deposit insurance model will be in a shambles even if the Deposit Insurance Guarantee Corporation does not collect premium on the entire deposit and expects cooperative banks to pay risk-based premium. In any case, a discussion note ought to have spelt out details and also specified the increase in deposit insurance under the new resolution corporation that will be set up. 
 
3. “Resolution of public sector banks (PSBs) to be done in consultation with the Government.”
 
This statement also raises several questions. If the government continues to hold a majority stake in PSBs, where is the question of ‘resolution’? Or will we have an incongruous situation where a sovereign guarantee will not apply to government-owned entities? If yes, this will only trigger another round of panic. 
 
According to Mr Chakrabarty’s note, the Bill has been discussed with the ministries of corporate affairs, social justice and empowerment, tribal affairs, departments of agriculture, cooperation and farmers’ welfare, expenditure, revenue, financial services, national commissions of scheduled castes and scheduled tribes, financial sector regulators, Competition Commission of India and Indian Banks’ Association.
 
The largest stakeholders, we, the depositors, who will be most affected by the Bill have been left out; even bank employees and their representatives have not been consulted. 
 
Most Indians have their core savings in bank accounts and the fear that deposits may be in jeopardy is already causing a lot of stress. Given the government’s record of hasty decisions and missteps, it would be a good idea to put the Bill out in the public domain, seek feedback, take on board the positive suggestions and then come up with legislation that will allow resolution of financial entities without triggering panic among people.

 

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    User

    COMMENTS

    ANIL GOPAL SHINDE

    1 week ago

    Bank Depositers have always been at the receiving end. There is an urgent need for safeguarding the hard earned money by people. The loot by various industrial houses & politicians is in public domain for long. In most of the cases, it's the common man that suffers. This should end somewhere.

    Seshadri Rajagopalan

    2 weeks ago

    Whar will be the status of FCNR deposits by non resident Indians?

    Ramesh Poapt

    2 weeks ago

    will the bill be finally passed? opposition/protest will
    not allow it for sure.

    S Balakrishnan

    2 weeks ago

    Attaching bank depositors' funds for absolutely no fault of theirs makes a mockery of bank licences.
    This bill will trigger panic in the fin system

    SuchindranathAiyerS

    2 weeks ago

    As always an excellent analysis. The underlying problem, of course, is the Colonial - Totalitarian nature of India's tyranny where "Caesar's wife" i beyond accountability and the Judges, RBI, IAS, IFS, IPS, IRS, MLA, MP etc go Scot free after failing to do their job which is to protect the interests and security of India citizens. The Colonial-Totalitarian construct is that the ruling tyrants need only protect themselves.
    I am indebted to Moneylife.

    leo stanley

    2 weeks ago

    Target is always middle class for bjp. they will kill the RBI by taking dividend money and banking system soon die with this bill.

    They like to kill this saving habbit for Indians.

    they need to find process for not to make now banks. not killing deposit ors

    Bankers plan strike on budget day, four other days
    Protesting against the Indian Banks Association's (IBA) rigid approach in the wage revision negotiations, the United Forum of Bank Unions (UFBU) has decided to go on strike on January 31, February 1 and March 11, 12 and 13, according to a top All India Bank Employees' Association (AIBEA) leader.
     
    Interestingly, the bankers have called strike on the day when Finance Minister Nirmala Sitharaman would be presenting her second budget.
     
    In a statement AIBEA General Secretary C.H. Venkatachalam said the IBA had adopted a rigid approach in resolving the wage revision demands during the bipartite talks on January 13.
     
    He said the UFBU, an umbrella body of nine unions in the banking sector, met after that and decided to go on a two-day strike, starting January 31, followed by three-day strike, starting March 11, and an indefinite strike from April 1 to highlight the demands and express our protest.
     
    "We are sure all our unions would understand the seriousness of the situation given the government policies towards labour and take all-out steps to implement the programmes," he said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User

    COMMENTS

    Dr.Dhananjaya Bhupathi

    2 weeks ago

    Mohan Badi on FB:
    UFBU n IBA teams always try to be in a Good Book of DFS n MOF n we watch now presently it's only WE BANKERS Team is fighting all over everywhere openly without any fear of joblessness. As in we bankers, all are youngsters. And these UFBU retiree leaders cant manage mind matching in any form in any matter of dispute solving with this We Bankers Team. So day by day we all most all getting fetched towards this new team. This new team knows how we all suffered for 25 years. No Zanzat of BPS n demanding CPC. CHV at least now must stop fooling us all retirees. He has pressurized to lose our 100% DA case too which was in our favor in Kolkatta High Court. 40% less DA all these Pre 2002 retirees get. S C Jain is just a Dummy Secretary from AIBRF dancing at the tune of CHV. Wah. being Ex AGM in the hands of Ex.award staff. n CHV is from AIBEA. SHAME ON YOU MR. S C JAIN. First, resign n leave us n be happy on your pension n do not kill we pensioners contribution made to our respective Assns n Unions. Nights are insufficient to narrate all Such endless n shameless these two persons so-called Heros from the Banking Industry.

    8Chittaranjan Samal, Ramesh Chandra Aggarwal, and 6 others
    2 comments
    Like
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    Comments
    Joginder Singh Saini
    Joginder Singh Saini Ufbu is a group of Namards.
    Hide or report this
    Like
    · Reply · 2d
    Dhananjaya Bhupathi
    Dhananjaya Bhupathi SC Jain, a victim of unbridled ego, is a spent force totally obliged to CHV, his mentor. CHV never likes to leave AIBEA and he knows how to move levers of power centers in UFM & IBA. Working employees are too busy to seek change at the apex level. WE BANKERS are too young with zero experience. Erstwhile UFBU leaders are in AIBRF/CBPRO as a spent force; how honest they may be. They are good for nothing. PMO/UFM officers are duds of adhocism. PM & UFM are too busy to listen to us.
    Edit or delete this

    BR

    2 weeks ago

    Unduly high Bank wages ENSURED tht its employees get huge wealth in short time. So they could retire early by taking High VOLUNTARY Retirement benefits without NEEDING to work till retirement age. They may even have got other jobs. They are able to like wages for Strike days. I too got bank job. It does not need intelligence above average. Responsibility &Risk are low. Care & promptness are needed.
    Systems are bad. Money Rs4300/-sent to our SB acct,SBI was wrongly sent to other accts in 22 sums. Despite showing passbook of senders as evidence of our branch getting it, branch refused to pay us. An employee said that AFTER branch got it, it was sent to another person's acct. Now it says tht it has no evidence.
    Entries in our passbooks of Sums paid to our acct do not all show the Source. Much space is wasted to write unwanted things like "By (space) : (space)" etc., followed by NEFT, etc. So we do not know if expected dues & if unexpected sums are paid & who paid some sums. So we ask the staff to search each entry in the computer & tell us what the end letters are in them. Some do not bear senders' names. If space is not wasted in the start of entries, it may be possible to write names.
    Thrice I saw a name of a payer in our passbook & told the bank tht it was wrongly sent to us & so must debit them. It debited but, whether it paid the right acct or not I do not know.
    Many rules are not known to officials. They bluff. Often we follow wrong things they tell &we pay penalty or fees &high GST. They deny telling us wrong things.
    If the system rejects a cheque they do not know why. Reasons are not always stated. We must wait for weeks &months. They do not phone & ask their offices to reply.
    A SBI branch sent SMS to me tht my Acct was "Kept on Hold". I could not use it even for emergency. I borrowed money at Interest from others, to meet some needs. The manager said tht may be Aaadar was not added. I said tht it was NOT compulsory. Staff showed that our Customer id was WRONGLY entered in box for KYC & so it did not match &the system automatically sent SMS. It said that the branch did not err but tht, the Local HO or CoreBanking System did it. Till now LHO or Branch say tht they do not have access to the system but did not explain who erred.
    Officials do not care to set systems right. They want to meet targets &get promoted.

    Unduly high Bank wages ENSURED tht its employees get huge wealth in short time. So they could retire early by taking High VOLUNTARY Retirement benefits without NEEDING to work till retirement age. They may even have got other jobs. They are able to like wages for Strike days. I too got bank job. It does not need intelligence above average. Responsibility &Risk are low. Care & promptness are needed.
    Systems are bad. Money Rs4300/-sent to our SB acct,SBI was wrongly sent to other accts in 22 sums. Despite showing passbook of senders as evidence of our branch getting it, branch refused to pay us. An employee said that AFTER branch got it, it was sent to another person's acct. Now it says tht it has no evidence.
    Entries in our passbooks of Sums paid to our acct do not all show the Source. Much space is wasted to write unwanted things like "By (space) : (space)" etc., followed by NEFT, etc. So we do not know if expected dues & if unexpected sums are paid & who paid some sums. So we ask the staff to search each entry in the computer & tell us what the end letters are in them. Some do not bear senders' names. If space is not wasted in the start of entries, it may be possible to write names.
    Thrice I saw a name of a payer in our passbook & told the bank tht it was wrongly sent to us & so must debit them. It debited but, whether it paid the right acct or not I do not know.
    Many rules are not known to officials. They bluff. Often we follow wrong things they tell &we pay penalty or fees &high GST. They deny telling us wrong things.
    If the system rejects a cheque they do not know why. Reasons are not always stated. We must wait for weeks &months. They do not phone & ask their offices to reply.
    A SBI branch sent SMS to me tht my Acct was "Kept on Hold". I could not use it even for emergency. I borrowed money at Interest from others, to meet some needs. The manager said tht may be Aaadar was not added. I said tht it was NOT compulsory. Staff showed that our Customer id was WRONGLY entered in box for KYC & so it did not match &the system automatically sent SMS. It said that the branch did not err but tht, the Local HO or CoreBanking System did it. Till now LHO or Branch say tht they do not have access to the system but did not explain who erred.
    Officials do not care to set systems right. They want to meet targets &get promoted.





    Mohan Krishnan

    2 weeks ago

    Privileged Bank Staff (Criminals in disguise) going on strike. Just stop low interest housing loan, Education loan for their kids, Pension benefits. These parasites should not be treated with any mercy. They have enabled Crony Capitalist to loot the country and enabled official Hawala.

    REPLY

    BR

    In Reply to Mohan Krishnan 2 weeks ago

    Unduly high Bank wages ENSURED tht its employees get huge wealth in short time. So they could retire early by taking High VOLUNTARY Retirement benefits without NEEDING to work till retirement age. They may even have got other jobs. They are able to like wages for Strike days. I too got bank job. It does not need intelligence above average. Responsibility &Risk are low. Care & promptness are needed.
    Systems are bad. Money Rs4300/-sent to our SB acct,SBI was wrongly sent to other accts in 22 sums. Despite showing passbook of senders as evidence of our branch getting it, branch refused to pay us. An employee said that AFTER branch got it, it was sent to another person's acct. Now it says tht it has no evidence.
    Entries in our passbooks of Sums paid to our acct do not all show the Source. Much space is wasted to write unwanted things like "By (space) : (space)" etc., followed by NEFT, etc. So we do not know if expected dues & if unexpected sums are paid & who paid some sums. So we ask the staff to search each entry in the computer & tell us what the end letters are in them. Some do not bear senders' names. If space is not wasted in the start of entries, it may be possible to write names.
    Thrice I saw a name of a payer in our passbook & told the bank tht it was wrongly sent to us & so must debit them. It debited but, whether it paid the right acct or not I do not know.
    Many rules are not known to officials. They bluff. Often we follow wrong things they tell &we pay penalty or fees &high GST. They deny telling us wrong things.
    If the system rejects a cheque they do not know why. Reasons are not always stated. We must wait for weeks &months. They do not phone & ask their offices to reply.
    A SBI branch sent SMS to me tht my Acct was "Kept on Hold". I could not use it even for emergency. I borrowed money at Interest from others, to meet some needs. The manager said tht may be Aaadar was not added. I said tht it was NOT compulsory. Staff showed that our Customer id was WRONGLY entered in box for KYC & so it did not match &the system automatically sent SMS. It said that the branch did not err but tht, the Local HO or CoreBanking System did it. Till now LHO or Branch say tht they do not have access to the system but did not explain who erred.
    Officials do not care to set systems right. They want to meet targets &get promoted.




    Gladwyn

    In Reply to Mohan Krishnan 2 weeks ago

    Correctly said

    Yes Bank Says Its CAR is Comfortably Above Regulatory Requirements
    Yes Bank Ltd has said certain reports questioning its liquidity and stability are not true and unfounded.
     
    In a regulatory filing, Yes Bank says, "Recently there have been some unsubstantiated and irresponsible press/social media speculation about Yes Bank. This release is being issued to firmly assure all our customers on Yes Bank's liquidity and stability. In this regard, it may be noted that the bank's overall capital adequacy ratio (CAR) is comfortably above regulatory requirements and all efforts are being made to financially strengthen the Bank even further."
     
    Yes Bank ended Wednesday 3.2% up at Rs39.80 on the BSE, while the 30-share Sensex closed marginally down at 41,872.
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