"The government is trying to strengthen the banking system by policy initiatives on a daily basis. But social media rumours are being spread about the FRDI Bill, which is completely opposite to the reality. We are trying to protect the depositors interest and the banks as well," PM Modi said in an address at industry body FICCI, a day before key state Gujarat votes in the second and last phase of assembly elections.
The Prime Minister's assurance comes as a huge controversy rages over the "bail-in" provision, under which banks will be allowed to forfeit a major portion of deposits made by account holders in case of a financial crisis.
Opposition parties have alleged that the government could use people's money to save financial institutions that have made bad lending calls. Banks are struggling under a bad-loan burden of around Rs 10 lakh crore ($150 billion).
PM Modi said his government has inherited a "completely spoilt banking system" from the previous Congress-led UPA government. He said the biggest liability passed on by the previous government was non-performing assets (NPA).
The last government, the PM alleged, forced banks to lend to influential industrialists, which exacerbated the NPA situation. "Commonwealth scam, 2G scam and Coal scam, and the biggest scam - the banking scam - all happened during UPA regime," the Prime Minister said.
Some financial analysts have suggested that a "bail-in", as against a bailout in which outside money is used to save a financial institution, may eat into funds parked by depositors.
An online petition last week appealed against allowing "a government entity to use depositors' money to save a bank on the verge of bankruptcy" and said to Finance Minister Arun Jaitley, "Our hard earned money that we have saved for our children and for our future will be used to bail-in the banks." It got over 40,000 sign-ups in just 24 hours.
Mr Jaitley has already sought to allay concerns multiple times, saying the government will fully protect public deposits in banks and on Tuesday even hinted that the government is open to changes in the proposed bill, currently being reviewed by a parliamentary panel.
The Finance Minister has said that the government's massive Rs 2.11 lakh crore capital infusion plan for banks will strengthen them and there is no question of any lender failing. If it happened, he promised, the government would step in to "fully protect" the deposits made by customers, he said adding that "the government is very clear about it".
The Bill was first introduced in the Lok Sabha in August this year during the monsoon session and was referred to a joint parliamentary committee.