New Delhi, Dec 15: The controversial Financial Resolution and Deposit Insurance (FRDI) Bill, which was officially listed for the Winter Session of the Parliament, has been deferred by the Parliamentary Standing Committee to the Budget Session. The Parliamentary Standing Committee, which is currently examining the bill, will give its report during the budget session.
The FRDI Bill establishes a Resolution Corporation to monitor financial firms, anticipate the risk of failure, take corrective action, and resolve them in case of such failure. The bill created controversy over its ‘bail-in’ clause, which will allow critically ill banks to restructure their liabilities, which are also depositors’ monies.
The clause is being opposed by many sections of society, as it is understood to be putting depositors’ money in danger. So far thousands of people have petitioned against it online even as the government, on several occasions, assured the public that the bill was depositor friendly and provided more protection.
The Union Cabinet chaired by Prime Minister Narendra had approved the proposal to introduce FRDI Bill in June this year. The bill was tabled in Lok Sabha in the monsoon session. The bill was first brought to attention by Union Finance Minister Arun Jaitley in his 2016-17 budget speech. The senior BJP leader had 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 a Bill in the Parliament during 2016-17.
In March 2016, a committee was set up under the chairmanship of Ajay Tyagi, additional secretary, Department of Economic Affairs, Ministry of Finance, to draft and submit the Bill. The draft of Financial Resolution and Deposit Insurance Bill 2017 was drawn up based on the recommendations of this committee.
What the bail-in clause is
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. A bail-in is an opposite of bail-out, in which, the banks instead of saving bankrupt companies, save themselves. So, the FRDI bill, if passed in the Winter Session scheduled to commence on December 15, will allow critically ill banks to restructure their liabilities, which are also depositors’ monies. Restructuring of liabilities means that they can take your deposited cash and issue bonds, shares etc, which can be redeemed only after a fixed period of time.