NEW DELHI: The FRDI or Financial Resolution and Deposit Insurance Bill was introduced by the government in Lok Sabha nearly a year back. Amid rising concerns about the 'bail-in' clause and "various reasons", the government on Tuesday decided to withdraw the Bill from the lower house of Parliament.
Experts believed that the 'bail-in' clause had potential to harm deposits in savings bank accounts.
Here are 10 things to know about the journey of the FRDI Bill:
1. The Bill was introduced on August 10, 2017 in the House and then referred to the joint committee of Parliament.
2. 'Bail-in' clause: The clause had been included in the Bill as one of the tools for resolution for bank failure. It provided for depositors to bear a part of the cost of the resolution by a corresponding reduction in their claims. This provision had raised concerns that deposits could be used to bail out failing banks.
3. In December last year, then finance minister Arun Jaitley had asserted that the government was committed to protecting the interests of depositors in public sector banks (PSBs).
4. In January, economic affairs secretary Subhash Chandra Garg had said that attempts to create scare regarding bail-in were totally unfounded. "70 per cent deposits are in PSBs. Most remaining deposits are in well capitalised and sound private banks. No likelihood of bail in for over 98 per cent of depositors. Remaining also subject to bail in if the depositors consent," he had tweeted.
5. The FRDI Bill also proposed to create a framework for overseeing of financial institutions such as banks, insurance companies, non-banking financial companies (NBFCs) and stock exchanges in case of insolvency. The 'Resolution Corporation', proposed in the draft Bill, was to look after the process and prevent the banks from going bankrupt. It would have done this by "writing down of the liabilities", a phrase some interpreted as a 'bail in'. The draft Bill empowered the Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability.
6. The Bill also proposed raising the security cover for bank deposits. At present, each depositor is protected only up to Rs 1 lakh by the Deposit Insurance and Credit Guarantee.
7. Due to controversies over the 'bail-in' clause, the committee sought views of several stakeholders, including the Reserve Bank of India (RBI) and industry bodies. While briefing the panel, RBI Governor Urjit Patel had expressed concerns with regard various provision of the Bill related to criteria for risk classification, information sharing between regulators and Resolution Corporation, among others.
8. Union minister Piyush Goyal, who is also in-charge of the finance ministry till Arun Jaitley recuperates from a kidney transplant, had informed the joint committee that: "The stakeholders including public have raised apprehensions relating to the provisions of the FRDI Bill, like the use of bail-in instrument to resolve a failing bank, the adequacy of deposit insurance cover and the felt need to revive the insurance limits substantially, and application of resolution framework for public sector banks.
"Resolution of these issues would require a comprehensive examination and reconsideration. It is, therefore, appropriate that the Bill may be withdrawn," he added.
9. The committee, headed by Bhupender Yadav, agreed with the proposal of the government to withdraw the Bill.
10. A proposal to withdraw the Bill was today moved by minister of state for finance Pon Radhakrishnan and was approved by the House.
(With inputs from PTI)
Experts believed that the 'bail-in' clause had potential to harm deposits in savings bank accounts.
