FRDI Bill 2017
Channel: All We Need Is A Chance
Date: 03/02/2018

Finance Minister Arun Jaitley has assured that the Bill will not hurt depositor's interests.

“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,” he tweeted.

Here’s all we need to know about the Financial Resolution and Deposit Insurance Bill:

1. The government tabled the bill in August in the Lok Sabha, which was referred to a Joint Committee of Parliament.

2. The bill seeks to provide for the resolution of certain categories of financial service providers in distress, and the deposit insurance to consumers of certain categories of financial services

3. The bill will pave the way for setting up of the Resolution Corporation for protection of consumers of specified service providers and of public funds for ensuring the stability and resilience of the financial system and for matters connected therewith or incidental thereto.

4. The proposed legislation together with the Insolvency and Bankruptcy Code, 2016 is expected to provide a comprehensive resolution mechanism for the economy.

5. The bill stipulates that any deposit taker who promotes and accepts deposits in an unregulated deposit scheme may be punishable with imprisonment for a minimum term of two years, which may be extended to 10 years, and with a fine which may extend to twice the amount of aggregate funds collected from subscribers, members or participants in such schemes or arrangements.

6. The proposed legislation seeks to provide a comprehensive code to ban unregulated deposit schemes and protect interests of depositors.

7. The FRDI bill seeks to create a framework for resolving bankruptcy in banks, insurance companies and other financial establishments, as there is no specific law at present in India for resolution of failures of financial services providers.

8. At present, each depositor of banks can be only protected up to a limit of Rs 1 lakh by the guarantee of the Deposit Insurance and Credit Guarantee Corporation (DICGC). The remaining deposits (beyond Rs 1 lakh) do not have any protection guarantee and are treated on par with claims of unsecured creditors as of now.


Other points - 

1. It is different from a traditional bailout in which government's money helps bank tide over the crisis. In case of a bail-in, it is the bank's own deposits (that is your money) that are used to rescue the bank or reduce its liabilities.

2. The idea of a bail-in is one under which creditors and depositors absorb some of the losses in a scenario where a financial institution fails.

3. According to Section 52 of the proposed Bill, depositors will lose their rightful claim to retrieve their savings in case of liquidation of banks and insurance companies.

Meanwhile, the government alleged the FRDI bill is far more depositor friendly than many other jurisdictions, which provide for statutory bail-in, where the consent of creditors/ depositors is not required for bail-in.

"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," government sources said.
There is furious public debate around the Financial Resolution and Deposit Insurance (FRDI) Bill tabled in August and now under the scrutiny of a Joint Parliamentary Committee (JPC). The Bill seeks to lay down a clear resolution mechanism for banks and financial firms in the case of default. Clause 52 of the Bill- Powers to the Resolution Corporation: This clause is sending ripples of unease among savers. The Bill seeks to repeal the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act of 1961, handing over its role to the new Resolution Corporation. Clause 52 of the Bill empowers the Resolution Corporation overseeing bank defaults to use a bail-in provision against creditors to absorb losses. In invoking this bail-in, the Corporation can cancel any of the bank’s liabilities or change their terms. Speculation is rife that the Centre is planning to take the route taken by regimes such as Cyprus, where public deposits were cancelled to fund bank haircuts on bad loans. Bail-in versus Bail-out: A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. It is the opposite of a bail-out, which involves the rescue of a financial institution by external parties, typically governments using taxpayer’s money.

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