Government's FRDI Bill triggers bank run in Andhra Pradesh and Telangana

Thanks to a fear of losing their hard earned money, because of a bail-in clause in the Financial Resolution and Deposit Insurance (FRDI) Bill, people in Andhra Pradesh and Telangana are queuing up to withdraw fairly large amounts from their bank accounts, according to a media report.

The salaried, who typically withdraw only Rs 5,000 to Rs 10,000 in the first few weeks of any month, have been queuing up to draw the entire amount from ATMs immediately after their salary gets credited, reported The Times of India.

Representational image. Reuters.

The FRDI Bill, which proposes to check the fallout of the failure of a financial institution, includes a bail-in clause that states depositors will have to bear a part of the resolution cost by a corresponding reduction in claims. Clarification by the Centre regarding this bail-in clause has failed to ease anxiety in the two southern states.

Bankers have reportedly asked their customers not to panic. The State Bank of India's (SBI) Chief General Manager for the Hyderabad Circle, Swaminathan J, told clients that, "there is no need to panic. The FRDI Bill is still a Bill and the government has clarified on the bail-in clause and said that depositors will be protected. There is no history of depositors facing a situation where they have lost their deposits in public sector banks. All their deposits are safe and secure."

Any prolonged bank run could impact banking operations in the two states.

Earlier, Telangana Finance Minister Etala Rajender told the Telangana Legislative Council, “The crunch is due to inadequate supply of currency by RBI, reduction in cash inflow from the public, high demand for higher denomination notes. ATMs are going dry and banks are also not giving cash. RBI officials are saying cash going out of banks is not coming back in Telangana and Andhra.”