Sunday, Dec 17, 2017 | Last Update : 02:09 AM IST

FRDI bill won’t hurt depositors, claims Finance Ministry

THE ASIAN AGE. | PAWAN BALI
Published : Dec 8, 2017, 2:19 am IST
Updated : Dec 8, 2017, 2:22 am IST

The bill was presented in Lok Sabha in August before it was referred to a joint committee of Parliament.

The finance ministry said that the bill is far more depositor-friendly than in many other countries which provide for statutory bail-in without consent of creditors and depositors.
 The finance ministry said that the bill is far more depositor-friendly than in many other countries which provide for statutory bail-in without consent of creditors and depositors.

New Delhi: To quell growing fears and apprehension that the Financial Resolution and Deposit Insurance Bill, 2017, (FRDI) may result in people losing their hard-earned savings in case of a bank’s failure, the finance ministry on Thursday said that the bill as introduced in Parliament does not “adversely” modify the current protections for depositors.

“The government’s implicit guarantee for public sector banks remains unaffected,” the finance ministry said in a statement.

The bill has caused alarm over a “bail-in” provision which, some analysts say, may mean that creditors and depositors, which include common account holders, have to absorb losses in case of a bank’s failure.

Under a bail-in, troubled banks issue ties in lieu of the money deposited. In the past, in several countries, bail-in efforts have largely worked against depositors. In Cyprus, for example, depositors lost almost 50 per cent of their savings when a bail-in was implemented.

The bill was presented in Lok Sabha in August before it was referred to a joint committee of Parliament.

Critics say the bill is anti-poor and aimed at minimising the losses of failing financial institutions. They say the law will put common people’s money in jeopardy.

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.

“The provisions contained in the FRDI bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide additional protections to the depositors in a more transparent manner,” the ministry said in a statement.

The ministry’s clarification came on a day when an online petition, started by Mumbai-based Shilpa Shree, against the bill received  more than 40,000 signatures in just 24 hours. The petition, filed on change.org, calls for support against the proposed law.

Currently, under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, a maximum of Rs 1 lakh of every depositor in banks is insured  in case a bank goes bust.

The FRDI proposes a “resolution corporation” which, in association with a regulator, will determine the amount of money of depositors to be insured in case a bank fails.

The bill says that the provision of bail-in will not be applicable on “any liability owed by a specified service provider to the depositors to the extent such deposits are covered by deposit insurance”.

The finance ministry said that the bill is far more depositor-friendly than in many other countries which provide for statutory bail-in without consent of creditors and depositors.

“Indian Banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability. The existing laws ensure the integrity, security and safety of the banking system,” said the ministry.

“The bill ensures that, in the rare event of failure of a financial service provider, there is a system of quick, orderly and efficient resolution in favour of depositors,” added the ministry.

Tags: frdi bill, finance ministry, indian parliament
Location: India, Delhi, New Delhi