The Union Cabinet chaired by Prime Minister Narendra had approved the proposal to introduce a Financial Resolution and Deposit Insurance (FRDI) Bill in June this year. The bill was tabled in Lok Sabha in August and the Joint Committee of Parliament is expected to submit its report in the upcoming winter session of Parliament beginning 15 December. It is expected to pave way for a comprehensive resolution framework for specified financial sector entities to deal with bankruptcy situation in banks, insurance companies and financial sector entities, as per the statement given by the government. It also aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors. For those who still don’t know what is FRDI bill, here are 10 important points:
1. The bill was first brought to attention by Union Finance Minister Arun Jaitley in his 2016-17 budget speech. The senior BJP leader had said that a systemic vacuum exists with regard to bankruptcy situations in financial firms and that a comprehensive Code on Resolution of Financial Firms will be introduced as a Bill in the Parliament during 2016-17.
2. In March 2016, a committee was set up under the chairmanship of Ajay Tyagi, additional secretary, Department of Economic Affairs, Ministry of Finance, to draft and submit the Bill.
3. The draft of Financial Resolution and Deposit Insurance Bill 2017 was drawn up based on the recommendations of this committee.
4. The finance ministry, then, gave time until 31st October 2016 to given comments. After considering the suggestions, the Union Cabinet approved to introduction of FRDI Bill 2017 in the Parliament.
5. The Finance Ministry believes that the bill seeks to protect customers of financial service providers in times of financial distress.
6. The bill will also help to encourage discipline among the financial service providers by putting a limit on the use of public money to bail out distressed entities.
7. It seeks to decrease the time and costs involved in resolving distressed financial entities.
8. In order to strengthen the stability and resilience of the entities in the financial sector, a resolution corporation will be set up after the bill is enacted.
9. However, the FRDI Bill has received its share of criticism from various stakeholders for some of its controversial provisions including a ‘bail-in’ clause which suggests that depositor money could be used by failing financial institutions to stay afloat.
10. Another controversial inclusion is that the Resolution Corporation (rescue body) which is proposed under the Bill, can use your money in case the bank sinks. The bill empowers the rescue body to decide the amount insured for each depositor.