FRDI Bill clauses aimed at protecting depositors' interests

Alicia Farmer
December 7, 2017

The government statement goes on to state that the FRDI Bill 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 finance ministry said that the government's implicit guarantee for public sector banks remain unaffected by the provisions of the FRDI Bill.

The statement comes in the wake of certain misgivings doing the rounds about the "bail-in" provision in the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill).

In India, it said all possible steps and policy measures are taken to prevent failure of banks and protection of interests of depositors through issue of directions/prompt corrective action measures, capital adequacy and prudential norms.

It may be recalled that Bank unions had expressed anguish over certain provisions in the FRDI Bill, especially those related to a "Bail-in". The government said FRDI bill is more friendly to depositors than other jurisdictions which provide the statutory bail-in.

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In case for banks, the ministry stated that they have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability.

Bankers point out that the draft bill states that "the Resolution Corporation shall, in consultation with the appropriate regulator, specify the total amount payable with respect to any one depositor, as to his deposit insured under this act, in the same capacity and in the same right".

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. The corporation may also investigate their activities. But, not too many would agree with this argument unless the Bill itself undergoes a change with respect to the two controversial provisions. The committee will submit the report in the upcoming winter session of Parliament starting on December 15.

Economic Affairs Secretary SC Garg, too has spoken to allay the concerns of depositors saying principal guarantee for PSU bank depositors come from the government ownership and there is no reason to worry.

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