‘FRDI Bill does not adversely alter depositor protection’ 

‘FRDI Bill does not adversely alter depositor protection’ 

Context

In an attempt to clear the air about bank deposit protection under the proposed Financial Resolution and Deposit Insurance  (FRDI) Bill 2017, the government on Thursday said the provisions in the Bill do not adversely modify existing protections granted to depositors at all, adding that the legislation would be far more depositor-friendly than those in other jurisdictions

What did the government say?                                                                  

Government said that

“The FRDI Bill will strengthen the system by adding 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”

• Misgivings: “Certain misgivings have been expressed in the media regarding ‘bail-in’ provisions of the FRDI Bill,” the statement added. “The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide additional protections to the depositors in a more transparent manner
• The FRDI Bill will not limit the scope of powers for the government to extend financing and resolution support to banks, including public sector banks, saying that the Government’s implicit guarantee for public sector banks remains unaffected

Backdrop

This statement comes against the background of increasing criticism in the media and on social media of the perceived nature of the ‘bail in’ clause, which allows a Resolution Corporation to cancel or modify the liabilities of a failing bank, something analysts have said could extend to bank deposits as well

• The FRDI Bill was introduced in the Lok Sabha on August 10, 2017, and is currently under the consideration of the Joint Committee of the Parliament