The provisions in the Financial Resolution and Deposit Insurance Bill, 2017, (FRDI) will allow banks to have more control over the money deposited by you. It allows banks to use depositors' money to stay afloat if its financial condition begins to go downhill.
It means that if a bank is facing financial problems, then it can use depositors' money to reduce its liabilities. An India Today report said that banks may even lock your money for a long time or be asking you to take a hit on your deposits.
Certain other provisions in the bill concerning the insurance of the money deposited in a bank may leave you worried. According to the 1961 Deposit Insurance and Credit Guarantee Corporation Act, up to Rs 1 lakh of your money deposited in a bank is insured if a bank were to fail.
What has usually been happening so far is that when a bank is about to shut down or incurring huge losses, the RBI steps in and merges or allows it to be taken over by healthier banks including their liabilities. What happened with the Global Trust Bank (GTB) in 2004 is an example of how RBI stepped in to protects the depositors. When the GTB was in financial distress, the RBI decided to amalgamate it with the Oriental Bank of Commerce. It is a different thing that depositors' accounts remained frozen for three months.
The FRDI bill has proposed changes in this. It has proposed setting up of a Resolution Corporation which can use your money in case the bank sinks. Instead of government money being used to bailout banks in distress, the new bill provides for bank's own deposits to be used to rescue the bank or reduce its liabilities.
The rescued body will have powers to cancel even the Rs 1 lakh insurance deposited in the bank. In this case, a bank can even declare that they don't owe you any money at all.
The bank, if needed, can change the lock-in period (like that of FD) without consulting you. The bank may turn your savings into a fixed deposit without asking you, said a report.
All in all, the bill will greatly weaken depositors' rights and the money deposited will be in great jeopardy if the bank sinks.