If the draft bill gets the nod of Parliament, it will empower the Resolution Corporation to cancel a bank’s liability or alter it to another security. When we deposit money in a bank, in a savings or fixed deposit account, it is based on the promise that the bank shall return the money on demand. Essentially, any money you put in a bank is a form of an unsecured loan you give it.
However, with ‘bail-ins’, the banks would be empowered to simply refuse the repayment of the customer’s hard-earned money, or in some cases, issue securities like preference shares, in lieu of the money. These deposits would then be used for the recapitalisation of the ailing bank.
* Banking on legislation - The Hindu.
* Should Depositors Fear The New Financial Resolution & Deposit Insurance Bill?.
I am in the process of studying banking service regulations and legal framework of other countries. What's your opinion about such kind of move? Do you think such laws would force citizens to adopt the concepts like "Be your own bank "
This would hurt the banks' ability to compete to get deposits. Period. This would dissuade depositors of wanting to keep money at an Indian bank and would encourage offshore banking - say bye bye to money in India.
This ultimately ends up being counter-productive as the less deposits eventually leads to less capital for the banks!
LOL