After Being Cash-Less With Demonetization, People Could Be “Deposit-Less” too with the FRDI Bill

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Arun Jaitley PIB

Arun Jaitley PIB

The Financial Resolution and Deposit Insurance (FRDI) bill, which is part of a host of banking reforms and enactment of laws, is currently pending before the standing committee of parliament. This bill is receiving a lot of flak from stakeholders due to its controversial provisions. One of them is the ‘bail-in’ clause which signifies funds taken from internal stakeholders, unlike bail-out which involves money from external parties.

Traditionally when a financial body fails or bank’s financial situation deteriorates, bail-out packages are given to these bodies to prevent them from collapsing. These bail-out packages are given to them by individuals, entity or government. But the ‘bail-in’ clause is exactly opposite to the previous clause as depositors will lose their rightful claim to retrieve their savings in case of a failure of a bank or other deposit-taking financial institution. It means that the bail-in clause will give power to banks to sweep out the money of their depositors in case of bankruptcy or if the bank is on the brink of failure.

This FRDI bill also aims to set up an agency, Financial Reconstruction Corporation (FRC), which will be empowered to order the amalgamation, merger, liquidation, and acquisition of any bank, insurance companies, and non-banking financial companies if it feels the institution carries an ‘imminent’ or ‘critical’ risk to viability.

The FRC will also have the power to decide upon the compensation for the depositors in case of failure of the financial institution or bank. As of now, the depositor is ensured to the extent of Rs. 1 Lakh in case of bank failure and there was a demand from stakeholders to increase this amount citing this as too low for anyone who might be depositing his entire life’s hard-earned money.

However growing disquiet against the provisions of this bill from the opposition and other stakeholders hinted the government to backtrack some of its provisions. Finance Minister Arun Jaitley tweeted, “The Financial Resolution and Deposit Insurance Bill, 2017 is pending before the Standing Committee. The objective of the Government is to fully protect the interest of the financial institutions and the depositors. The Government stands committed to this objective.”

Modi government has been characterized as anti-people and anti-poor by the opposition and trade unions pointing out that now small depositors have to pay for bad lending choices of bank and loans given to big corporates.

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