Govt defends FRDI Bill, says it will be more depositor-friendly
Assuring a full protection to the interest of depositors, Government on Thursday defended the provisions of the Financial Resolution and Deposit Insurance Bill 2017, or FRDI Bill, saying that the clauses in the legislation are more depositor-friendly compared to the existing provisions.
The statement comes in the wake of 'certain misgivings that appeared in the media about ‘bail-in’ provisions of the FRDI Bill, 2017. The Bill has been criticised for some of its controversial provisions, including a bail-in clause which suggests that depositor money could be used by failing financial institutions to stay afloat.
The Government also further assured that the provisions in the FRDI Bill do not modify current protections for depositors adversely at all, the ministry held, maintaining that these rather provide additional protections in a more transparent manner.
“The FRDI Bill is far more depositor-friendly than many other jurisdictions, which provides for statutory bail-in, where consent of creditors or depositors is not required for bail-in,” the Finance Ministry said in a statement.
The FRDI Bill was introduced in the Lok Sabha on August 11, 2017. The Bill is presently under consideration of the Joint Committee of Parliament. The legislation was introduced in the monsoon session but was later referred to the joint committee of both the houses of Parliament, the Lok Sabha and the Rajya Sabha.
“The FRDI Bill does not propose in any way to limit the scope of powers for the Government to extend financing and resolution support to banks, including public sector banks. The Government's implicit guarantee for public sector banks remains unaffected,” it said.
However, a member of parliamentary committee said, “RBI Governor Urjit Patel is likely to brief the members of the parliamentary panel assessing the crucial FRDI Bill next month. The all party parliamentary committee has to submit its report by the last day of the first week of the winter session of Parliament.”
The Bill also seeks to deal with insolvency of financial service providers and it proposes to establish a ‘resolution corporation’ which will classify service providers such as banks and insurance companies based on their risk of failure. The corporation may also investigate their activities. 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.
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. The existing laws ensure integrity, security and safety of the banking system.
In India, it said all possible steps and policy measures are taken to prevent failure of banks and protection of interests of depositors through issue of directions/prompt corrective action measures, capital adequacy and prudential norms.
“The FRDI Bill will strengthen the system by adding a comprehensive resolution regime which 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 statement added.
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