FRDI Bill Don't worry, your deposits will be safe

Most of us have bank accounts, but the funds held in these savings accounts aren't really safe if the banks fail.

To protect bank deposits, the Centre is going to introduce a new bill -Financial Resolution and Deposit Insurance (FRDI) bill- in the Parliament in the upcoming winter session.

The FRDI debate finally comes down on the intent of the government. Remove the political rhetoric from the provisions of the Bill to see that your bank deposits are safe.

Before 1991, financial firms (banks, insurance, mutual fund, pension) were mainly government owned. In a state-owned and -controlled market, the fear of failure was minimal. The need for sector regulators was not there.

As the market expanded to allow in the private sector, the manner of oversight has changed. Sector regulators were born to set up the rules of the game of how a private sector bank or insurance company or mutual fund or pension manager must behave, what they can or cannot do and what happens when they mis-behave.

The FRDI Bill aims to put in place an early warning system for financial firms. It covers banks, insurance companies, payment systems, stock exchanges, and some others are financial firms. When banks fail who gets hurt? Depositors like you and me.

If an insurance company fails, again it is us, the retail consumers who get hurt. If a biscuit maker or a noodle company or a car company fails, we may get hurt due to reduced choices, but there is no financial implication (unless you are an investor), but when a financial firm fails, we can lose our money that has been entrusted to the firm. That is why we need a different set of rules for financial firms.