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  1. Bail-in: Government assures depositors again over FRDI bill, says existing protections will be increased

Bail-in: Government assures depositors again over FRDI bill, says existing protections will be increased

The government on Tuesday once again allayed fears regarding the Bail-in provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill.

By: | Updated: January 2, 2018 7:26 PM
The government on Tuesday once again allayed fears regarding the Bail-in provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill. (Image: PTI)

The government on Tuesday once again allayed fears regarding the Bail-in provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, saying that the depositors’ existing protections will be enhanced, and the Bail-in provision will be used sparingly. The reassurance came from both the Finance Ministry and Secretary of Department of Economic Affairs, Subhash Chandra Garg.

Subhash Chandra Garg posted on Twitter that public sectors banks will effectively be not subject to bail in provisions. He said: Government clarifies provisions of FRDI bill. Depositors’ existing protections will be enhanced. Bail in will be only sparingly used. Public sectors banks will effectively be not subject to bail in provisions. Depositors need not have any apprehensions.

The Finance Ministry also posted a series of tweets assuring depositors. “Bail-in provision may not be required to be used in case of any specific resolution. Most certainly, it will not be used in case of a public sector bank as such a contingency is not likely to arise,” the Finance Ministry said.

“Bail-in is only one of many resolution tools in the FRDI Bill; others are acquisition, merger and bridge service provider, and is to be used either singly or in combination with other tools,” it added.

The Bail-in provision of the bill caused a lot of furore on the social media, following which the government swung into action with a series of assurances.

The FRDI Bill, which was officially listed for the Winter Session of the Parliament, may not be introduced in Parliament even during the Budget Session as the Parliamentary Standing Committee got an extension to submitting its report “up to the last day of Budget Session, 2018”. Lok Sabha Speaker Sumitra Mahajan informed the House that extension of time has been granted to the joint panel on the FRDI Bill “up to the last day of Budget Session, 2018”.

What the bail-in clause is:

A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. A bail-in is an opposite of bail-out, in which, the banks instead of saving bankrupt companies, save themselves. So, the FRDI bill, if passed in the Winter Session scheduled to commence on December 15, will allow critically ill banks to restructure their liability, which is also depositors’ monies.

“Critically ill banks can change the structure of their liabilities under the bail-in clause to rescue themselves. Restructuring of liabilities means that they can take your deposited cash and issue bonds, shares etc, which can be redeemed only after a fixed period of time,” Samir Ghosh, General Secretary, All India Reserve Bank of India Employees Association said.

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