FRDI BILL DROPPED

The controversial Financial Resolution and Deposit Insurance (FRDI) Bill, which brought out a hue and cry from different corners, has been dropped by the Government,  bringing a great relief amongst the bank customers.  What is the effect?

1. The current system of insurance deposit will continue and customers will be rid of the worry of the “bail in” provision, in the current bill.
2. The bill was introduced in the Loksabha on August 10, 2017 and was sent to the Joint Parliamentary Committee, which has not submitted its report so far.
3. The Bill contained two controversial clauses viz
   1. A BAIL IN provision and
   2. Insurance on Deposits.
4. The BAIL IN provision specified that in the event of a bank getting liquidated, a portion of the liability will be passed on to the Depositors, thus jeopardising the interest of the Bank Depositors.
5. This in other terms means that the Liabilities Holders which otherwise means the customers, would bear a part of the cost of solution by reduction in their claims.
6. The Government had repeatedly reiterated that bail in provision may not be used, in case of any specific resolution and most certainly it will not be used as a contingent liability against public sector banks. However, it had terribly angered the depositors and was criticised from all corners.

Scenarios:

1. Presently the deposits of customers are insured upto Rs. 1 lakh. However, the proposed bill aimed to delete the legal provision for the present insurance system and defined this protection clause in a different way.
2. Also, the Government had repeatedly added that similar protection would be made available under the FRDI bill also and the Resolution Corporation would be endowed with powers to increase the deposit insurance amount.
3. It had reiterated that in the FRDI bill the claims of uninsured depositors will be more protected than that of the unsecured creditors thus protecting the uninsured depositors’ rights in a better way.
4. Attack was made on the bill by different people, that there was no insurance cover available for the customers’ deposits, and the bill was recommended by one all to be removed.
5. Government also reiterated that there was no comprehensive and integrated framework for a resolution and that restructuring of all RRBs and Banks was in its control.

Resolution System:

The insolvency and Bankruptcy Code 2015 has brought out a comprehensive  resolution regime for non-financial firms however, there is no such provision for financial firms.  The bill was aimed in bringing out a comprehensive reosluton in the event of failure of a financial firm that would bring out a fast, systematic and fast resolution in favour of depositors.