1 min read.Updated: 12 Dec 2017, 08:04 AM ISTLivemint
The FRDI Bill has been criticized for a bail-in clause which suggests that depositor money could be used by failing banks and financial institutions to stay afloat
New Delhi: Seeking to allay concerns of depositors over provisions of FRDI Bill, finance minister Arun Jaitley on Monday said the government will fully protect public deposits in financial institutions even as he hinted at openness to changes in the proposed Financial Resolution and Deposit Insurance Bill 2017.
Jaitley said the government’s massive Rs2.11 trillion bank recapitalisation plan was to strengthen banks and there was no question of any lender failing. If any such situation arises, the government will “fully protect" the deposits made by customers, the finance minister said here adding that “the government is very clear about it".
Jaitley made the comment to allay concerns with regard to a provision in the FRDI Bill 2017, first introduced in the Lok Sabha in August this year and currently undergoing scrutiny by a joint parliamentary committee. The so-called “bail-in" clause in the draft legislation has been commented upon by experts as of bringing potential harm to deposits, in the form of savings accounts
“The FRDI Bill is before the joint committee of Parliament. Whatever are the recommendations of the committee, the government will consider," he said. He said rumours are being spread about the provisions of the bill.
“The government has already clarified and said it is committed to strengthen PSU banks and financial institutions. About ₹ 2.11 lakh crore is being pumped in to strengthen the public sector banks." The FRDI Bill proposes to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services (NBFC) companies and stock exchanges in case of insolvency.
The “resolution corporation", proposed in the draft FRDI Bill, would look after the process and prevent the banks from going bankrupt. It would do this by “writing down of the liabilities", a phrase some have interpreted as a “bail in".
The draft FRDI bill empowers resolution corporation to cancel the liability of a failing bank or convert thenature of the liability. It does not specify deposit insurance amount. At present, all deposits up to Rs1 lakh are protected under the Deposit Insurance and Credit Guarantee Corporation Act that is sought to be repealed by this bill.