FRDI bill: Four reasons why bank employees are planning a strike against it

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Updated: December 12, 2017 6:35:20 PM

The latest to oppose the bill is All India Bank Employees Association (AIBEA) that has planned a strike if the Centre proceeds on the proposed legislation.

The bill was first brought to attention by Union Finance Minister Arun Jaitley in his 2016-17 budget speech. (Image: PTI)

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 against the Bill — “Do not use innocent depositors’ money to bail in mismanaged banks #NoBailIn” — has already been floated and it has attracted over 1,00,000 signatures by Tuesday. The government has already been forced to issue a statement saying the law is, in fact, aimed at protecting the interests of depositors in a “more transparent manner”. The latest to oppose the bill is All India Bank Employees Association (AIBEA) that has planned a strike if the Centre proceeds on the proposed legislation.

Here are the three foremost reasons for a strike opposing the FRDI bill:

1) The Bill has created widespread fear, apprehension and panic among the depositors that the government is contemplating to liquidate the banks and the deposits of the Banks will not be returned because of the bail-in clause of the Bill, reports IANS quoting AIBEA.

2) AIBEA says that the Bill provides for setting up a new authority Financial Resolution Corporation (FRC) which will deal with liquidation and resolution of Banks Insurance and other financial institutions.This FRC will supersede the powers of RBI (Reserve Bank of India) and other agencies dealing with the problem at present. Deposit Insurance Corporation guarantees deposits up to Rs 1 lakh per customer. This will be closed down and the FRC will decide the amount now.

3) The IANS report also quotes AIBEA saying that at a time when people are already worried about their money in the banks due the huge bad loans and consequently write off, loss of revenue, losses being incurred by banks, the government instead of assuring the people about safety has chosen to bring this FRDI Bill which deals with a possible liquidation of banks.

4) The AIBEA said the question of bail-in does not arise in Indian situation as banks under liquidation are generally merged with stronger banks.

What is the FRDI Bill about?

  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 the 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.

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