Finance Ministry tries to remove 'misgivings', says FRDI Bill depositor friendly

The Financial Resolution and Deposit Insurance Bill 2017 was tabled in the Lok Sabha in August following which it was referred to the joint parliamentary committee. The committee will submit its report in the upcoming winter session of Parli

Union finance minister Arun Jaitley has hinted that the Bill is now under the examination of a Parliament standing committee and the government is committed to protect the interests of depositors.

The government dismissed these apprehensions and said that the bill does not propose to limit the scope of powers for the government to extend financing and resolution support to banks, including public sector banks. Section 52 of the Bill lays down certain provisions, which if enacted, could land the depositors' money at risk if a financial institution goes broke. "The objective of the government is to fully protect the interest of the financial institutions and depositors", he said in a tweet. Today, the finance ministry has clarified the provisions of deposit protection guarantee that will maintain in the proposed FRDI bill as well.

In an attempt to clear the air about bank deposit protection under the proposed Financial Resolution and Deposit Insurance (FRDI) Bill 2017, the government said the provisions in the Bill did not adversely modify the existing protections granted to depositors at all.

FRDI Bill i.e. Financial Resolution and Deposit Insurance Bill 2017 aims to focus on finding a resolution in case of a rare event of a failure of any financial service provider like banks, insurance companies or a non-banking financial companies etc.

If the FRDI Bill (presented in Parliament in August) becomes a law in the current shape, that will offer ammunition to the Opposition to portray it as yet another anti-people move by the Modi-government-something clearly this government can't afford after the backlash over disastrous demonetisation and poorly executed goods and services tax (GST) rollout.

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The ministry in the statement said that certain misgivings have been expressed in the media regarding "bail-in" provisions of the Bill.

"Indian Banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability", the statement said. The existing Financial Resolution and Deposit Insurance Bill ensure the integrity, security and safety of the banking system. "Principal guarantee for PSU Banks' depositors come from government ownership which also remains completely unaffected", Garg said. The Bill has been the cause of worry for depositors across the country. For example, if you have 20 lakhs of FDs and your bank fails, then all you will get is maximum Rs. 1 lakh under insurance as a return. Simply put, a bail-in is rescuing an ailing bank or a financial institution by making its creditors and depositors take a loss on their holdings.

There are several reasons why some provisions of the Bill have sparked concern and outrage in equal measure. Finance Minister Arun Jaitley took to Twitter to issue a clarification and assure people that their interests will be protected.

This bill envisages that in case a bank is declared bankrupt, the depositors may lose their money. The bail-in provision was used in Cyprus in 2013 where depositors lost as much as 50 percent of their savings when a bail-in was implemented. It means that the bail-in clause will give power to banks to sweep out the money of their depositors in case of bankruptcy or if the bank is on the brink of failure.

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