The misconception that led to panic withdrawal of cash from banks was one of the reasons cited for the withdrawal
The government has decided to drop the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, following widespread public anxiety over the security of bank deposits, according to a report by Indian Express.
The report suggests that the decision to withdraw the FRDI Bill was taken before the protests by bank employee unions and state-run insurance companies held on July 14.
The Department of Economic Affairs has reportedly been asked to prepare a withdrawal proposal for the Cabinet to approve. The Cabinet will likely take up the proposal on Wednesday.
The misconception that led to panic withdrawal of cash from banks was one of the reasons cited for the withdrawal, according to the news daily's report.
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Widespread panic was caused over the controversial 'bail-in' clause in the bill, which states that in the event of a bank becoming insolvent, the depositors will have to bear a part of the cost of resolution by way of a reduction in their deposit claims.
Introduced in August 2017, the bill was referred to a parliamentary joint committee, which is currently consulting stakeholders.
"With the (parliamentary committee) report likely to come out in December, the government's fear could be that it would be approaching the general elections next year with large scale negativism among the public," an official told the newspaper.
The government had earlier stated that the 'bail-in' clause would not be applicable to public sector banks (PSBs), and that it would only be used as a last resort when a merger or acquisition is not viable in the case of a private sector bank.
The Centre had also said that depositors would be given preferential treatment over other unsecured creditors of the bank and the government itself, if the bail-in clause is to be used during the liquidation of a bank.
It added that the bill not only provides additional protection to depositors, it also says that prior consent of depositors is necessary before the bail-in can be used to save said bank.
In January, the Union Labour and Employment Ministry had raised concerns about the controversial clause in the FRDI Bill, stating that the move may impact medical benefits under ESIC.