NEW DELHI: The finance ministry on Thursday sought to allay fears that the Financial Resolution and Deposit Insurance (FRDI) Bill would expose depositors to losses, saying it would actually protect the interests of depositors. The Bill is currently before a joint committee of Parliament.
The clarification comes amid widespread concern about the ‘bail-in’ clause, which critics fear will lead to depositors losing savings if a bank fails. Several bank employees associations have red flagged the clause so far.
According to the finance ministry, however, the FRDI Bill is far more depositor-friendly than many other jurisdictions, which provide for statutory bail-in, where consent of creditors / depositors is not required for bail-in. “It does not propose in any way to limit the scope of powers for the government to extend financing and resolution support to banks, including public-sector banks.
The government’s implicit guarantee for public sector banks remains unaffected,” it said. The government is of the view that Indian banks have adequate capital, and extant regulations and oversight to ensure security and safety currently. “In India, all possible steps and policy measures are taken to prevent the failure of banks and protection of interests of depositors (issue of directions/prompt corrective action measures, capital adequacy and prudential norms),” the government said.
Critics’ primary concern revolves around the setting up of a new ‘Resolution Corporation’ which will see the dissolution of the current Deposit Insurance and Credit Guarantee Corporation, an RBI subsidiary, which insures all kinds of bank deposits up to a limit of Rs 1 lakh.
However, the role of the DICGC will move to the new body, which has been empowered to monitor financial firms, calculate stress and take ‘corrective actions’ in case of a failure. In critical cases, the Corporation will be empowered to take over and resolve issues within a year —including through corrective actions like merger or acquisition, transferring assets, liabilities to another firm, or liquidation.
The ministry said the Bill would “strengthen the system by adding a comprehensive resolution regime that will help ensure, in the rare event of failure of a financial service provider, that there is a system of quick, orderly and efficient resolution in favour of depositors”.
Online petition against FRDI Bill
Even as the finance ministry has stepped in to clear the air about the FRDI Bill, an online petition against the bill has gone viral and got thousands of signatures within a day. The online petition, filed on Change.org, seeks public support against what it terms as an attempt to “allow a government entity to use depositors’ money to save a bank on the verge of bankruptcy”.