This Tsunami will wipe out your money lying in the Banks

This Tsunami will wipe out your money lying in the Banks*

I now get on with my "banking Armageddon amendment" that is under way. Read the post and all the links that I have provided here and you will understand as to how the "kitchen sink" is thrown at you by this Govt.

1. Banks, the world over, get into problems, when the loans advanced by them are not repaid on time, by the borrowers. When the economy is in a slow-down, many of these borrowers go belly up and become NPAs.

2. Normal banking prudence suggests that the banks should auction the assets given by the borrower as security, at the time of taking loans. Generally banks insist on 150% security of the loan amount. For example, if a borrower wants Rs.100 as loan, he has to provide security worth Rs.150 before availing the loan.

3. However, for big borrowers, every norm is flouted and when they become NPAs like that of Anil Ambani in Telecom, you are talking of outstanding dues worth Rs.45,000 Cr. Now the question is, who will replace the funds, that were loaned to him.

4. Today the NPAs of Indian Banks, amount to over Rs.10 Lac-
Cr. Jaitly or Urjit Patel do not give the actual figures. To resue these banks, the Govt. has 2 options. They are called "bail-out", which means the Govt. uses the taxpayers' money to fund the bank. This is very wrong but it has now been happening, quite regularly in India,

5. The other monstrous option is called "bail-in". The is the term that forms the very pivot of this post and has never been resorted to, in our country earlier. Now what is "bail-in". The dictionary meaning of "bail-in" is - "rescuing a financial institution on the brink of failure "by making its creditors and depositors" take a loss on their holdings". A bail-in is an internal process and is the opposite of a bail-out, which is external and handled by Govt. with budgetary allocation.

6. You just deposit your money in a bank as a "Savings Deposit or Fixed Deposit" to use it whenever you want. You have no clue as to how well the bank is managed. Now Modi & Jaitely have got a bill approved by the Cabinet called "The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017" and this has now been referred to a Joint Parliamentary Committee before getting it passed in the Parliament.

7. This bill covers "bankruptcy of businesses such as banks and insurance". Financial resolution includes solutions for banks facing ‘imminent’ risk to their viability & their very existence, depending on their capital, asset worth and quantum of NPAs.

8. Now comes the wily Jaitley into the picture. This Bill also introduces the provision for a “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival. Here, survival does not mean safety of depositors’ money, but restoration of capital of the bank. The bail-in empowers the bank to cancel a liability owed by the bank or change the form of an existing liability to another security.

9. In simple words, it means that your savings account balance of Rs.15 lacs, can be reduced to Rs.1 lac, which is mandatory by law. Or they can convert your savings account balance of Rs.15 lacs to a Fixed Deposit, repayable after 5 years, giving you of 5% annual interest.

And you can nothing about it. If you had kept that money for your daughter's marriage, it is bad luck and you cannot access your money for the next 5 years. View this link, to know more. https://www.thehindu.com/opinion/op-ed/banking-on-legislation/article20005363.ece

10. A question may arise in your mind, if such things happen abroad. Certainly yes and in a big way. Cyprus was the first country to the face "bail-in" in 2013. The depositors lost 47.5% of their savings in phase-1. They also had a phase -2. See the report from Cyprus Mail, which screams "Lenders set Bank of Cyprus bail-in at 47.5%" View the link. https://cyprus-mail.com/2013/07/28/lenders-set-bank-of-cyprus-bail-in-at-475/

11. After this, the G-20 Nations, comprised of Nations that include US, UK, Japan, Germany, France, China, Australia, Canada and others have officially approved this process. Incidentally India is also a part of G-20. View the link. https://www.nestmann.com/its-official-the-worldwide-bail-ins-are-coming

12. When the banks make hefty profit, you don't get anything but when they are into losses, "suppliers & depositors have to lose their money. And the heartless duo of Modi & Jaitley have come up with yet another brutal aspect. Just unbelievable.

13. To recover the money from the defaulters, there is no attempt so far by the Reserve Bank of India to blacklist these entities from getting further loans or prevent their managements from retaining a majority equity stake, as penalty for the huge haircuts (writing off loans) being taken by banks. Ambanis & Essars can go away scott free and we depositors have to clean the toilet.

14. In a nut-shell they are now trying to shift the responsibility of rescuing the "sinking banks" from the Govt. to the Suppliers & Depositors of the Bank. The borrowers can go on a fishing trip. Trust in Banking Industry would be decimated. People would gradually close all their bank accounts and keep their cash under the bed. Bloody madness.

Share this extensively thru' every social media. This bill should not be allowed to become an act.

FB name : Brm Muralidharan, CA, Navi Mumbai.
brm2559@gmail.com

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FWD AS RECEIVED. NOT NECESSARY I SUBSCRIBE TO THE VIEWS EXPRESSED

But this would surely be music to the ears of Modi bashers in here

 

I really had no immediate reply after seeing your post yesterday. But after a long thought, yes this is a cent percent real possibility now in india. This is the advantage of the govt for cashless transactions. Most of us keep cash in the bank thinking it would be safe. Retired people are the ones who keep money in the banks. Investors keep cash waiting for market dips / crashes. It would bleed everyone.

These bail-ins usually should happen only during a major banking crisis.
Whenever this bail-in policy is passed in parliament, I suggest the following:
1) Do a due diligence on all banks and find out how well capitalized they are and their ratio of troubled assets they have.
2) Move your money from a single bank to multiple smaller banks after prior due diligence.
3) Consider sovereign bonds. Money is guaranteed by govt of India.

IMHO, do not see any major market crashes or major banking crisis like the one we had in 2007/2008, till early 2020's. We may have market dips but not crashes. We are in a major Bull market from 2016. So we still can keep our money in banks for next couple of years.

 

Is this one of the reasons that cryptocurrencies have reached maniacal levels in such a short period?

 

No loan waiver for capitalists, government making 'mazboor' banks 'mazboot': Arun Jaitley
https://toi.in/wGSTha/a19ai