FRDI Bill provides additional protection to depositors' interests: Finmin

Finance Minister Arun Jaitley has said that the government

"The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all". Section 52 of the Bill lays down certain provisions, which if enacted, could land the depositors' money at risk if a financial institution goes broke. The bank unions were opposing the Bill for this proposal and had said the objective is to heavily empower the new authority with sweeping powers to dismantle and erase public sector financial institutions. "They provide additional protections to the depositors in a more transparent manner", the ministry said in a statement.

A proposed law which the government claims will help contain the impact of a failing bank is also created to protect the rights of depositors, Finance Minister Arun Jaitley has said to allay worries that a "bail-in" provision allows depositors' money to be used by weak institutions to pay out of a total collapse.

Finance Minister Arun Jaitley has sought to allay concerns of bank depositors about the safety of their savings by stating that the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, is still in the "drafting stage" and the government will ensure that the rights of depositors are protected.

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 to not let this bill pass with the bail-in provision. The Bill introduced in the Lok Sabha in August 2017, is presently under the consideration of the Joint Committee of Parliament.

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Ahead of Government's recapitalisation plan which will boost the banking system, it further said Indian banks with adequate capital are also under prudent regulation and supervision to ensure safety and soundness as well as systemic stability. "If this Bill becomes law in the existing format, depositors" money will be used to bail out failing financial institutions. 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). "Principal guarantee for PSU Banks' depositors come from government ownership which also remains completely unaffected", Garg said. In the past, in several countries, bail-in efforts have largely worked against depositors. Many political parties have said the bill is anti-poor, and is introduced to just minimise the losses of failing financial institutions.

This bill envisages that in case a bank is declared bankrupt, the depositors may lose their money. The bank also will not have any liability to fulfill any of the guarantees given by it to the depositors. 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.

The bill has caused alarm over a bail-in provision which according to many may mean creditors and depositors including common account holders have to absorb losses in case a ban fails.

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