Govt dismisses misgivings about proposed bail-in facility for banks

Govt dismisses misgivings about proposed bail-in facility for banks

Finance Minister Arun Jaitley on Wednesday said the proposed Financial Resolution and Deposit Insurance Bill (FRDI) protects the rights of depositors, denying reports to the contrary.

The government dismissed these apprehensions and said that the bill does not propose to limit the scope of powers for the government to extend financing and resolution support to banks, including public sector banks.

Modi government has been characterized as anti-people and anti-poor by the opposition and trade unions pointing out that now small depositors have to pay for bad lending choices of bank and loans given to big corporates.

Finance Ministry has clarified the doubts raised in some section of media over the Financial Resolution and Deposit Insurance, FRDI-2017, introduced in monsoon session of parliament.

The provisions in the FRDI Bill do not affect current protections for depositors at all, the finance ministry held, maintaining that they rather provide additional protections in a more transparent manner.

The bill, which seeks to deal with the insolvency of financial service providers, had been tabled in August in the Lok Sabha and has now been referred to a Joint Committee of Parliament, a Finance Ministry statement said here.

The ministry's clarification came on a day when an online petition, started by Mumbai-based Shilpa Shree, against the bill received more than 40,000 signatures in just 24 hours. However, the centre has received flak from several quarters over the inclusion of some provisions in the bill that might hurt the prospects of small depositors.

"Our hard earned money that we have saved for our children and for our future will be used to bail-in the banks", the petitioner said.

Currently, under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, a maximum of Rs 1 lakh of every depositor in banks is insured in case a bank goes bust.

"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. No commercial bank in the past have made its depositors lose their hard-earned money and RBI had always forced merger or taken other measures to fight against any banking failure for e.g.

In such cases, a more balanced view - a combination of bail-in or bail-out may be adopted keeping in view the depositors' interests, he added.

The clarification comes amid widespread concern about the "bail-in" clause, which critics fear will lead to depositors losing savings if a bank fails.

A bail-in could lead to moral hazard among banks and their risk taking propensity may also increase, which may prove to be counterproductive in scenarios of stress and downturn, Verma said.

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