BAIL-IN HYSTERIA.....FEARS, FACTS

Mass Hysteria regarding the safety of FD money is doing the rounds in Social Media...especially in WhatsApp.
Warning message to FD investors that their money is in DANGER is sending Shivers.

Lets understand and see whether we should be worried

1. What is this FRDI Bill?

FRDI BILL is the Financial Resolution and Deposit Insurance Bill.
This Bill’s objective is to monitor the Financial Institutions and Banks, anticipate risk of their failure, take corrective action and resolve them through a RESOLUTION CORPORATION.
This Resolution Corporation will be vested with powers to BAIL-IN a Financial Institution/Bank by way of cancelling, modifying, replacing and even changing any form of a liability with the specific intention to ensure that the Institution/Bank is protected from the risk it is facing.

India’s NPA at 9.6% (as per RBI report) is quite huge and this bill will to a huge extent drastically cut down this NPA levels and makes our Bank strong and hence the reason for bringing this bill.

2. What do you mean by Bail in?

Bail-in means preventing a company (here BANK from failing by converting debt into equity, selling off Bank’s assets, etc) without even needing the approval of Shareholders.





3. WHAT IS CAUSING THE SHIVERS FOR DEPOSITORS??
The Biggest SHIVER comes in the form of the Corporation having the power to CANCEL REPAYMENT OF DEPOSITS, CONVERT DEPOSITS INTO LONG TERM BONDS AND take all necessary action to protect the Bank.

Social Media, especially, WHATSAPP is full of messages which state that your BANK FD is in danger of not getting repaid to you.

In fact an online petition against the Bill NoBailIn has already attracted more than 1 lakh signatures!!!

4. DOES THAT MEAN MY FD IS NOT SAFE IN BANK ANYMORE?

It is a given that people believe that Bank FDs are risk-free.
Yes. It sure is!
All Deposits in Banks in India are insured for a MAXIMUM of Rs.1 lakh by DEPOSIT INSURANCE & CREDIT GUARANTEE CORPORATION.
Note..only  upto Rs.1 lakh even in the current form!!!!
Yes. Even the present Deposit Insurance is limited and you better know this now rather than later.
The DICGC will cease to exist once the FRDI comes into effect.
Does that mean the 1 lakh insurance guarantee also goes away??

The FRBI Bill HAS NOT MENTIONED about this Guarantee in the bill.
But, there is a provision wherein it has allowed the RC to set the insured amount limit.
The present rules say that your 1 lakh is GUARANTEED but above that you may get nothing if the Bank collapses.
But, the FRDI Bill says that above the limit (not yet specified), the balance of your deposit will get CONVERTED into a longer term instrument.
Which actually means that in the present regulations, your entire money could be LOST but in the new BILL.....the Bank WILL ACTUALLY owe you money even over and above the Insurance Limit!!!
Most importantly, the new FRDI Bill clearly says in case the FD is to be cancelled, consent of the Depositor is NEEDED (Section 52(7)).

Even Private Banks were saved by RBI.
Advance and always take care to ensure that you do NOT put your money in CRITICAL BANKS.



SO .....YOU MEAN TO SAY THAT MY MONEY IS SAFE IN BANK FD???
Yes. Upto 1 lakh it indeed is.
And even here the limit of 1 lakh could well be actually INCREASED.
Remember this limit of 1 lakh was fixed way back in 1993...a full 24 years back.


Also, The Insurance limit has been increased several times from the lowly Rs.1500 in 1961 to the present Rs.1 lakh. So, an increase in limit is a given.

And, please NOTE.....your SAVINGS ACCOUNT WILL NOT BE CONVERTED TO FD IN CASE OF A BAIL IN...
In fact, the Bill very clearly has mentioned that FD, RD are EXCLUDED from the Bail-In Provision!!!!

The Government has gone overdrive and issued clarification after clarification that the Depositors will be protected and assured IMPLICIT GUARANTEE.
So...for now..RELAX.
So, whether in the present form or in the new Bill your FD money upto Rs.1 lakh is INSURED.
Thus, the risk is the SAME in future as it is now. The new BILL does not alter this feature.
Conclusion,
Your money in Bank FD is safe for now and even after passing of this FRDI Bill.


By the way....upto 1 lakh ony!!!

HOW TO AVOID RISKY BANKS?

The New BILL will grade all the Financial Institutions including Banks as Low Grade, Moderate Grade and Critical Grade.
Thus, you, as an FD investor, will know the Health of these Banks well in advance and can always avoid Banks which are in Critical Grade.

Worried about the safety of your FD money in Bank with the new FRDI Bill??

Then read http://www.goodfundsadvisor.in/2017/12/bail-in-hysteriafears-facts.html

No bank has collapsed since 1961.
Yes...there are cases like Global Trust Bank..and even though these were private Banks,  RBI intervened and ensured that the same were taken over by some other bank and Depositers were saved.
Indian Banking System is quite strong and RBI has been doing a yoeman’s job for decades now.



DO NOT FALL PREY TO MALICIOUS SOCIAL MEDIA MESSAGES
If you have say 5 lakhs FD ....right now only 1 lakh is insured and not the entire 5 lakhs.
The same situation continues in the new FRDI rule too.
So, why this hue and cry??

Do not get misguided by Social Media.
Your money is safe.
Do not believe bullshit stories that people like Vijay Mallya's default will be put on your shoulders.
Nothing of such sort is being incorporated in the new bill.

FINALLY,
While you already are aware that MUTUAL FUNDS ARE SUBJECT TO MARKET RISK...
It would also be better to be aware that your FIXED DEPOSITS (above 1 lakh) IS SUBJECT TO SYSTEMATIC FAILURE RISK.!!
So, you could look at alternatives to FD like
Liquid Funds,
Short Term Funds,
Income Funds,
Do contact your Financial advisor before investing.






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And as always, do also remember MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS....PLEASE READ OFFER DOCUMENTS BEFORE INVESTING.

Best of luck,
Happy Investing,
Srikanth Matrubai