The government on Monday said it hasn’t taken any decision to re-introduce the controversial Financial Resolution and Deposit Insurance (FRDI) Bill, scotching growing speculations to the contrary. The FRDI Bill, which was withdrawn from the Lok Sabha in August 2018, had a “bail-in” clause that suggested that in case of insolvency in a bank, depositors would have to bear a part of the cost of the resolution by a corresponding reduction in their claims. It had caused a huge political furore. Even unions representing public sector banks (PSBs) and insurance companies opposed the Bill, alleging it proposed to empower authorities with sweeping powers to wind up PSBs and insurers.
“The government had withdrawn the FRDI Bill in August, 2018, for further comprehensive examination and reconsideration of the subject,” the finance ministry said on Monday. The Bill was first introduced in the Lok Sabha on August 10, 2017. Subsequently, it was referred to the joint committee of Parliament for examination before the government decided to withdraw it.
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 over 98% of depositors. Even the rest 2% can be subject to bail-in only with their consent, it had said.
Then 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 the ‘Resolution Corporation’ (regulatory body) to help prevent the banks from going bankrupt through “writing down of the liabilities”, a phrase that has been interpreted by analysts as a “bail in”. The Bill is now being examined by a joint committee of Parliament.
The finance ministry had said the 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.