Govt may withdraw FRDI Bill

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New Delhi | Published: July 19, 2018 4:41:45 AM

The government is likely to withdraw the controversial Financial Resolution and Deposit Insurance (FRDI) Bill, in view of concerns over the ‘bail-in’ clause which is feared to harm the interest of depositors, despite efforts to assure people of the security of their bank deposits.

The government is likely to withdraw the controversial Financial Resolution and Deposit Insurance (FRDI) Bill, in view of concerns over the ‘bail-in’ clause which is feared to harm the interest of depositors, despite efforts to assure people of the security of their bank deposits.

The Bill has been opposed by a broad range of stakeholders — from bank unions and opposition parties to depositors at large. People were particularly alarmed by the ‘bail-in’ clause in the Bill that suggests in case of insolvency in a bank, depositors will have to bear a part of the cost of the resolution by a corresponding reduction in their claims.

Unions representing public sector banks (PSBs) and insurance firms have been opposing the Bill as well, saying it proposes to empower authorities with sweeping powers to wind up PSBs and insurance companies.

It is still unclear how the government proposes to withdraw the Bill, but an official source said the continuous vilification of the Bill and deliberate proliferation of mis-conception, often by “vested interest”, could force the government to withdraw it. Given that 2019 general elections are just months away, the government is ostensibly cautious.

The Bill was introduced in Parliament in August last year and was referred to a joint House panel which is consulting stakeholders.

For its part, the finance ministry had earlier sought to allay fears of a massive loss by depositors in case a bank faces insolvency, stressing that the bail-in clause wouldn’t be applicable to more than 98% of depositors. Even the rest 2% can be subject to bail-in only with their consent.

Economic affairs secretary Subhash Chandra Garg had said 70% of deposits were in public sector banks and most of the remaining deposits were in well-capitalised and sound private banks.

The Bill proposes to set up a ‘resolution corporation’ (regulatory body) to help prevent banks from going bankrupt through “writing down of the liabilities”, a phrase that has been interpreted by analysts as a ‘bail-in’.

The finance ministry had said safeguards for depositors would only rise under the provisions of the Bill. “Bail-in will be only sparingly used. Public sector banks will effectively not be subject to bail-in provisions. Depositors need not have any apprehensions,” Garg had said.

The provisions relating to bail-in and insurance of deposits have been opposed by trade unions. Some opposition parties have termed these as anti-people.

However, the finance ministry has said insured deposits of banks cannot be used in case of bail-in. The bail-in instrument designed by the resolution corporation will be subject to government scrutiny and even parliamentary oversight. Even the cancellation of the liability of a depositor beyond the insured amount will be done only through prior consent of the depositor.

Deposits up to Rs 1 lakh will continue to be insured under the bill. The finance ministry had said the rights of uninsured depositors will be better protected after the passage of the Bill.

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