Government Withdraws FRDI Bill from the Lok Sabha

Government Withdraws FRDI Bill from the Lok Sabha

New Delhi: One of the most controversial bills, Financial Resolution and Deposit Insurance (FRDI) Bill has been withdrawn by the Government from the Lok Sabha today. This bill spooked the bank customers across the country and there was distrust among them.

It was in August 2017, when the government tabled the FRDI Bill in the Lok Sabha and then it was referred to the Joint Parliamentary Committee (JPC).

Interim Finance Minister Piyush Goyal informed the JPC that it has been decided by the government that it will withdraw the bill amid trepidation in the public about the ‘bail-in’ clause for resolution of bank failure which was perceived to be against the interest of the depositors. There was a fear in the customers that their deposits could be used to bail out a failing bank as well as there were concerns over deposit insurance cover also.

This withdrawal doesn’t mean that government has put a full stop to the efforts to create a framework to resolve bank failures rather it can be seen in another way that the government has taken a step back so as to bring the Bill back in a new form.

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Subash Chandra, Economic Affairs Secretary, told DNA, “The Bill which we presented did have some design issues, some serious issues about deposits, bail-in clause and issues related to public sector banks. Since these issues were a little big, it was thought better that we withdraw it and reframe it to bring a better law for financial firms.”

The FRDI bill was introduced with the intention to tackle the insolvency of the financial service providers. The bill had the provision of empowering the resolution corporation to initiate the transfer assets, merger or liquidation after the orders of NCLT (National Company Law Tribunal) to the financial firm which in a better position.

As per the FRDI bill, if the bank fails, deposit insurance up to a certain limit would be given by the proposed corporation. The limit of the insurance has not been specified. As of now, Rs 1 lakh bank deposits are insured.

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The Bill had suggested that the use of the ‘bail-in’ provision might result in cancellation of a liability, which could extend to bank deposits or could lead to modification of the terms or changing the form of the asset class. This provision would have been last in the line for payments in case of liquidation.

When the FRDI Bill led to rumours among the public, the government had clarified that it was far more depositor-friendly than many other jurisdictions, which provided for statutory bail-in, where consent of creditors/depositors was not required for bail-in.

There was no provision in the bill which limited the scope of powers for the government to extend financing and resolution support to the banks, including public sector banks, it had said, adding that the Government’s implicit guarantee for public sector banks would remain unaffected.