As of now, under the RBI, the Deposit Insurance and Credit Guarantee Corporation insure the depositor upto Rs. 1 lakh in case of bank failure. To further boost up the safety of the depositor's money, the Financial Resolution and Deposit Insurance or FRDI Bill has been proposed.
With the passage of the bill, Financial Reconstruction Corporation is to be set up that on finding a financial institution to be carrying an 'imminent' or 'critical' risk to viability can order its bankruptcy.
Further, liquidation, merger, amalgamation or acquisition of the bank, NBFC or insurance company can be ordered by the Corporation.
The liability of the bank in case of its failure shall then be decided by the Financial Reconstruction Corporation and could well be below Rs. 1lakh.
Also, it is believed that the elimination of the risk can partly mean confiscation of the deposits to some extent by the institution.
But experts do not see the creation of the new authority to manage the issue as something welcoming. Moreover, with the passage of the new bill, the rightful claim on the deposit money can no longer be exercised.
So, the insurance against the depositors' money need to be enhanced to provide them with enough cushion against any instances of the financial institutions being declared bankrupt.