Government cannot bailout Banks: D Subbarao

Former RBI Governor D. Subbarao said it was not right to expect the Government to bail out banks at the expense of exchequer.

Expressing his support for the Financial Resolution and Deposit Insurance (FRDI) Bill, he said the proposed legislation was an outcome of a global consensus that every country should have a mechanism for resolution of banks and the “depositors must accept liability for their deposits.”

“To believe that the Government must rescue every bank at the expense of exchequer, I think is wrong,” he said in response to a query after delivering a lecture at the National Institute of Rural Development and Panchayati Raj. He said if the Government puts in money to rescue a bank the money belongs to tax payers.

“What you are saying is that the depositors of the bank must be protected at national expense. Why should I protect somebody who has deposited money in the (particular) bank?”, he asked. Noting that bank depositors must accept liability, he said their deposits, however, would not be first call.

The first charge would be on owners of bank capital, secured creditors, unsecured creditors and then depositors.

To another query on banks levying charges from account holders not maintaining minimum balance, Mr. Subbarao said banks could not be asked to subsidise customers. If there is any subsidy, it has to be given by the Government to the banks.

Earlier in his lecture, he said the demonetisation exercise, of November 2016, was a good thing and “hopefully in the next 3 to 5 years we would see (its) positive impact coming in terms of growth, improved investment and ease of doing business.” It was also important to choke regeneration of black money, he added.

Speaking on financial inclusion, he said the poor want from the bank is credit, micro insurance, remittance facility.

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