Have FRDI Bill rumours triggered cash crisis in Andhra Pradesh, Telangana? Here is the truth

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New Delhi | Updated: April 5, 2018 1:01:46 PM

Peculiar rumours have led to the cash crunch in Andhra Pradesh and Telangana with people opting for heavy withdrawals. According to The Indian Express, there have been rumours that the passage of Financial Resolution and Deposit Insurance (FRDI) Bill will lead to heavy monetary losses if a bank goes bankrupt.

frdi bill 2017On the contrary, some bank officials have said that in order to increase digital payments and cashless transactions, Reserve Bank of India (RBI) has deliberately reduced cash supply to banks

Peculiar rumours have led to the cash crunch in Andhra Pradesh and Telangana with people opting for heavy withdrawals. According to The Indian Express, there have been rumours that the passage of Financial Resolution and Deposit Insurance (FRDI) Bill will lead to heavy monetary losses if a bank goes bankrupt. These rumours are believed to have sparked heavy withdrawals, reports claimed.

On the contrary, some bank officials have said that in order to increase digital payments and cashless transactions, Reserve Bank of India (RBI) has deliberately reduced cash supply to banks. SBI regional manager of Visakhapatnam H Purnima said that people are withdrawing money even if they do not need it and keeping it with them even as cash is not coming back into the banking system, the report says.

What is FRDI Bill? What will be consequences?

The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 was introduced in the Lok Sabha in August last year. The FRDI Bill is being examined by a joint Parliamentary committee. It has a bail-in clause which proposes to use depositors’ money to bail out their bank or financial institution if it fails, according to reports. Some experts say that the bill has a ‘bail-in’ clause which brings potential harm to deposits in the form of savings accounts, according to reports.

Earlier Finance Minister Arun Jaitley had assured the Lok Sabha that money of all depositors in public sector banks will be protected and there is no need to create any fear psychosis “The government is committed to protecting every depositor in public sector banks and therefore we need not create any fear psychosis,” he said.

Andhra Pradesh and Telangana’s Finance Ministers’ view

Telangana’s Finance Minister Etela Rajender also backed bank officials’ view that that RBI is not sending enough cash to banks. He alleged that this has led to the acute crisis. Rajender said that Telangana is set to brace for a severe crisis as the state government will soon start distributing farm subsidy of Rs 4,000 per acre to each farmer from April 20. The subsidy process amounts to nearly Rs 6,000 crore.

Andhra Pradesh Finance Minister Y Ramakrishnudu has also accused the RBI for the scenario. He said that unless the central bank sends adequate cash reserves to banks, the crisis may continue for several months.

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