The Bank Nifty today was falling not only because of higher yields and higher but also may be because of the financial reconstruction and deposit insurance bill giving depositors’ across the country scare that deposits in weak banks are under threat.
To discuss the impact of such a bill and if the scare is justified, CNBC-TV18 spoke to Usha Thorat, Former Deputy Governor, Reserve Bank of India and G Padmanabhan, Non-Executive Chairman, Bank of India and former executive-director of RBI.
Both believe that the timing of the FRDI Act is inappropriate and that there needs to be an upfront clarification about depositors' money.
The scare felt by depositors' is quite justified, said Thorat because 65 percent of financial savings in India is in banks. Moreover, there was already certain amount of erosion of trust that happened on account of demonetisation and this coming of top of that is a big worry.
FRDI Act isn't the most important step to be done at the current juncture, she said and Padmanabhan also shared the same sentiment.
Both believe the FRDI Bill needs to be discussed and debated in the parliament.
Padmanabhan said in India, depositors' have not lost money till date. Currently, the banks are required to make a provision of Rs 1 lakh in case of defaults. He is of the view that this provision needs to be increased.
When asked, if she would like the bill to go or come with ring-fencing of bank deposits, Thorat said people would want legal protection and they don't want their confidence eroded. Moreover, money moving out of banking system is something which cannot be allowed to happen.For full discussion, watch video