“Do not use innocent depositors’ money to bail in mismanaged banks #NoBailIn” — had attracted almost 103,357 signatures by Tuesday morning and the number is still counting.
Since the Financial Resolution and Deposit Insurance Bill, 2017, popularly referred to as the FRDI Bill, was tabled in Parliament, it has given worries to the depositors. In response to the bill, an online petition was launched on December 7 — “Do not use innocent depositors’ money to bail in mismanaged banks #NoBailIn” — had attracted almost 103,357 signatures by Tuesday morning and the number is still counting. The online petition, filed on change.org, was started by a Mumbai-based Shilpa Shree. “This bill gives power to a government entity to use depositors’ money to save a bank on the verge of bankruptcy,” the petition says. Finance Minister Arun Jaitley has constantly maintained that if this law is not passed, then the present system, where there is inadequate protection for depositors will continue.
About FRDI Bill
- 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.
- 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.
- The draft of Financial Resolution and Deposit Insurance Bill 2017 was drawn up based on the recommendations of this committee.
- The finance ministry, then, gave time until 31st October 2016 to given comments. After considering the suggestions, the Union Cabinet approved to the introduction of FRDI Bill 2017 in the Parliament.
- The Finance Ministry believes that the bill seeks to protect customers of financial service providers in times of financial distress.
- 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.
- It seeks to decrease the time and costs involved in resolving distressed financial entities.
- 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.
- 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.
- 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.
Finance Minister Arun Jaitley is in favor of the proposed FRDI Bill for protecting the rights of depositors. The Financial Resolution and Deposit Insurance Bill, 2017 is pending before the Standing Committee. Jaitley said that he is sure about the advantage of the proposed bill. “Adequate protection is needed for depositors. Now, what should be that larger protection? I am sure the parliament standing committee will consider this and give suggestions”, said FM Jaitley.