After public outcry, Govt drops FRDI Bill

-The Hindu Business Line

Controversial ‘bail-in’ clause had unnerved bank depositors

New Delhi: The government has decided to drop the controversial Financial Resolution and Deposit Insurance (FRDI) Bill, thus allowing bank customers to breath easy.

The Union Cabinet, which met on Wednesday, decided to drop this Bill, a senior Cabinet Minister told BusinessLine. This means the present system of insurance deposits will continue and customers will not have to worry about the ‘bail-in’ provision in the proposed Bill.

Since introduction and any change thereafter in the Bill would have required Cabinet approval, dropping the Bill also required it.

Two clauses

The Bill was introduced in the Lok Sabha on August 10, 2017, and then sent to the Joint Committee of the Parliament, which is yet to submit its report. There were two controversial clauses in the Bill: a bail-in provision and an insurance on deposits.

The bail-in provision stipulated that if a bank fails, depositors will have to bear part of the liability. Technically speaking, this provision says, “It amounts to liabilities’ holders bearing a part of the cost of resolution by reduction in their claims.”

The government repeatedly said that the bail-in provision “may not be required to be used in case of any specific resolution. Most certainly, it will not be used in case of a public sector bank as such a contingency is not likely to arise,” Nevertheless, it angered depositors and invited criticism from opposition parties.

Currently, deposits are insured up to ?1 lakh. The Bill proposed to delete the legal provision for the present insurance system and defined this protection in a new way. Here, too, the government made it clear that “similar protection would continue under the FRDI Bill and the Resolution Corporation is empowered to increase the deposit insurance amount.”

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