Defending the provisions of the Financial Resolution and Deposit Insurance Bill 2017, or FRDI Bill, the government said the clauses in the legislation are aimed at protecting the interests of depositors.
The bill has been criticized 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 FRDI Bill is far more depositor-friendly than many other jurisdictions, which provide for statutory bail-in, where consent of creditors/depositors is not required for bail-in,” the government said.
The FRDI Bill 2017 was tabled in the Lok Sabha in August, following which it was referred to the joint parliamentary committee. The committee will submit its report in the upcoming winter session of Parliament beginning 15 December.
The FRDI Bill aims to limit the fallout of the failure of institutions like banks, insurance companies, non-banking financial companies, pension funds and stock exchanges. But some of its provisions have been termed anti-people and anti-poor by the opposition parties who have pointed out that people’s money is being used to bail out banks that made bad lending decisions.
The government, in its statement, reiterated its commitment to support banks.
“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. Government’s implicit guarantee for public sector banks remains unaffected,” the statement said.
Merits of Financial Resolution and Deposit Insurance Bill, 2017:
The Financial Resolution and Deposit Insurance Bill, 2017 seeks to give comfort to the consumers of financial service providers in financial distress. It also aims to inculcate discipline among financial service providers in the event of financial crises by limiting the use of public money to bail out distressed entities.
It would help in maintaining financial stability in the economy by ensuring adequate preventive measures, while at the same time providing the necessary instruments for dealing with an event of crisis.
The Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors.
The Bill seeks to decrease the time and costs involved in resolving distressed financial entities.