What Is FRDI Bill? Lowdown On The Deposit Insurance Legislation

Modesto Morganelli
Dicembre 7, 2017

An online petition against the bail-in provision in the FRDI bill has got thousands of signatures even as the finance ministry said that the proposal, under consideration of a joint parliamentary committee, is depositor friendly and provides more protection.

The statement comes in the wake of "certain misgivings" that appeared in the media about bail-in provisions of the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill). "The objective of the government is to fully protect the interest of the financial institutions and depositors", Jaitley tweeted.

The bill minimises the failure of financial as well as non-financial institutions like banks, insurance companies and stock exchanges by providing measures like "bail-in" option to revive them.

The government further said Indian banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness as well as systemic stability. "The FRDI Bill will strengthen the system by adding a comprehensive resolution regime that will help ensure that, in the rare event of failure of a financial service provider, there is a system of quick, orderly and efficient resolution in favour of depositors", the ministry of finance said in a statement. In India, all possible steps and policy measures are taken to prevent the failure of banks and protection of interests of depositors (e.g. issue of directions / prompt corrective action measures, capital adequacy and prudential norms).

The petition was started by a Mumbai-based individual, Shilpa Shree, with a single signature and has got over 40,000 signups within 24 hours, supporting her appeal to Finance Minister Arun Jaitley to not let this bill pass with the "bail-in" provision.

FRDI aims to bring in discipline among the financial service providers by initiating a limit on the use of public money to bail out distressed firms.

The bill was open for comments and views till October 31, 2016.

The bill will also revoke the amendment of resolution-related provisions in sectoral Acts as listed in Schedules of the Bill. Also it will cancel the DICGC Act to transfer the deposit insurance powers and responsibilities to the Resolution Corporation.

Subhash Chandra Garg, Secretary, Department of Economic Affairs on Wednesday said, "FRDI Bill proposes to protect existing rights of the depositors". There is no dilution thereof. "This government entity can declare the bank doesn't owe you any money though you have deposited your hard earned money with it", the petition said.

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