What is FRDI Bill Controversy – Financial Resolution and Deposit Insurance Bill 2017 : The proposal to introduce FRDI Bill has been approved in Union Cabinet meet chaired by PM Narendra Modi. Currently, the bill is pending before parliament and have not been enacted as law yet. The joint committee of Parliament is expected to submit its report on FRDI bill in upcoming winter session commencing from 15 December.
What is FRDI Bill ?
Financial Resolution and Deposit Insurance Bill 2017 aims to focus on finding a comprehensive resolution in case of failure of any financial institution like banks, insurance companies, NBFCs etc. It also aims to strengthen the current framework of deposit insurance for benefits of a large number of customers / retail depositors.
Introduction of FRDI Bill :
- FRDI Bill first came into attention when Union Fin Minister introduced it in his budget speech 2016-17.
- Arun Jaitely in his speech said that a systemic vacuum exists with regard to bankruptcy situations in financial firms and that a comprehensive code on resolution of financial firms will be introduced as Bill in Parliament during 2016-17.
- To draft the bill, a committee under the chairmanship of Ajay Tyagi
( Additional Secretary, Department of Economic Afairs, MoF) was set up in march 2016.
- After the committee submitted its report based on which FRDI Bill 2017 Draft was drawn up.
- The Finance ministry sought comments on the Bill till 31 October 2016 and after consideration of the suggestions, the Union Cabinet approved it to introduce it in the Parliament.
Why FRDI Bill creating controversy ?
FRDI Bill is in controversy over its ‘bail-in’ clause that has created concern for depositors over safety of their hard earned money.
As per Bail in clause – If FRDI bill is enacted as law, depositor’s money can be used to bail out the failing financial institution. In other words, depositors will have to bear the loss directly in case of failure of bank.
Another concern for depositors is the Resolution Corporation that will provide deposit insurance upto a certain limit which has not been specified. Currently, bank deposits of up to Rs 1 lakh are insured by DICGC but there are few banks that have failed in India in recent years as the Reserve Bank of India (RBI) has stepped in to work out a resolution plan without creating any risk for depositors.
Is your bank deposit safe ?
Even the present rules hardly protects your deposits beyond Rs 1 lakh and No commercial bank in the past have made its depositors lose their hard-earned money. RBI had always forced merger or taken other measures to fight against any banking failure for example, Global Trust Bank or United Western Bank. The present panic situation arisen more due to the wrong and ambiguous wordings and needs to be corrected soon. The government has already acknowledged that there is no reason for depositors to worry and their money is safe and government is committed to protect it.