Doubts over bail-in provisions of FRDI Bill misplaced: Jaitley

 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.

Doubts over bail-in provisions of FRDI Bill misplaced: Jaitley
Union Finance Minister Arun Jaitley addresses a press conference in New Delhi. Photo: IANS
By ZeeBiz WebTeam
Updated: Tue, Jan 02, 2018
06:26 pm
Mumbai, ZeeBiz WebDesk
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Shutting out misgivings in regards to provisions of the FRDI bill, Finance Minister Arun Jaitley on Tuesday said the interests of depositors would be better protected under the bill.
 
Jaitley tweeted saying, "Certain misgivings have been expressed in the media, especially social media, regarding the depositor protection in the context of “bail-in” provisions of the FRDI Bill. These misgivings are entirely misplaced."
 

 
According to Jaitley, the government always stands ready to take care of the capital needs of the public sector banks. Bail-in amounts to liabilities’ holders bearing a part of the cost of resolution by reduction in their claims.
 

 
"Bail-in is only one of many resolution tools in the FRDI Bill; others are acquisition, merger and bridge service provider, and is to be used either singly or in combination with other tools," Jaitley added. 

 
In another tweet, he said, "Bail in provision may not be required to be used in case of any specific resolution. Most certainly, it will not be used in case of a public sector bank as such a contingency is not likely to arise."

 
The bill is currently pending before the Standing Committee.
 
On December 7, the Finance Ministry in a statement said that the FRDI bill introduced in the Lok Sabha on August 10, 2017, presently under the consideration of the Joint Committee of Parliament, does not modify present protections to the depositors adversely at all.
 
Further, Jaitley stated, "Financial Resolution and Deposit Insurance Bill, 2017, seeks to protect & enhance depositors’ existing rights & bring in a comprehensive & efficient resolution regime for financial firms."
 

 
The statement said, "FRDI Bill will replace the existing resolution regime by providing 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."

 
Currently, each depositors of banks can be only protected upto a limit of Rs 1 lakh by the guarantee of the Deposit Insurance and Credit Guarantee Corporation (DICGC). While beyond Rs 1 lakh of deposits, do not have any protection guarantee and are treated, at par with claims of unsecured creditors as of now.
 
Apart from giving protection guarantee of Rs 1 lakh to depositors, the FRDI Bill will also look into the rights of uninsured depositors compared to the existing legal arrangements over the unsecured creditors and even government dues.
 
Key Highlight of the Financial Resolution and Deposit Insurance Bill, 2017. 

  • It was brought to attention by Union Finance Minister Arun Jaitley during the Budget 2016-17 speech.
  • To scan and develop a proper regulations under the bill, a committee was set up in March 2016. It was set under the chairmanship of Ajay Tyagi additional secretary, Department of Economic Affairs, Ministry of Finance.
  • The bill was open for comments and views till October 31, 2016. Thus, after the consideration, the Union Cabinet in June 2017, approved the proposals made under FRDI Bill.
  • 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.
  • The joint committee is consulting all the stakeholders on the provisions of the FRDI Bill. The committee will submit the report in the upcoming winter session of Parliament starting on December 15.