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A New FDRI Apprehension: Should we be??

A couple of months ago Government of India has had introduced the Financial Deposit Resolution Insurance bill which is envisaged to replace the activity of Deposit Insurance and Credit Guarantee Corporation (DICGC).

Background:
Earlier DICGC was supposed to provide the insurance of up to 1 lakh Rupees for the depositors, in case of any 'Bank run' kind of situation.

Now, what FDRI bill offers for the depositor? Will it be different from DICGC? 

FDRI brings two important things:
1) Resolution Corporation   2) From 'Bail out' to 'Bail in'

Let me explain here:

Resolution Corporation would constitute of the eminent experts(Specialist in Finance of course), who would monitor the condition of the firms based on a certain parameter which is:
a) Low-Risk b) Medium Risk  c) High-Risk d) Imminent Risk   e) Critical

This risk refers to how financially secure any firm is? When the clock parameter clicks the Critical then this Resolution Corporation makes certain key recommended decision like 
a) Changing the management of the firms
b) Merger and Acquisition

These measure are taken based upon the severity of the issue and of course Government of India would make final decision with this regard.

Next part is  'Bail out' to 'Bail in' which means that if company undergoing certain financial stress then Government would take certain measure to protect the depositor's money.

How??

Converting all the amount into Equity and assuaging the intensity of the Risk, or simply Risk Diversification like Mutual Fund. Here government, depositor, firms and all other stakeholders would have to share the brunt.

So does that means that Depositors or general public would loose money?

We can't predict this, but one thing for sure that Financial Recession situation can be averted with this timely action. 

How?? Why India needs such policy??

Learning from 2008 Financial Recession or simply house bubble bursting, almost whole world economy collapsed. Indian domestic market who less affected because we haven't opened to world market enough. But now things are changing, India is opening up more like 100 % FDI in Defence, multi-brand retail etc. World is looking towards us. So FDRI act is essential because it will make the market more integrated to people and minimize the chance of failure. Philosophically I would say that sustenance of this World is due to our collective decisions, choices which we make, up till now we have sustained well enough. And when the Economy opens up, with Minimum Government and Maximum Self-governance, it becomes necessary to tie each other up so that we save other from falling. This is what Equity does.

Moreover, India is also moving away from the conventional Statutory backing(Bail-out), which do provide fixed insurance but does not maximize recovery of the losses. Also, this Bail-out policy was further burdening the public exchequer money which means more taxation, then public restlessness, which means government fall out, political dissonance and instability which further discredit sovereign rating.

At last I would say, this FDRI bill is necessary for our own sustainability because we don't realize how economically integrated we have become. We all would be accountable and responsible for our decision regarding finances which is kind of liberal policy, but at the same time government role doesn't end here. 

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