Financial Resolution & Deposit Insurance Bill (FRDI) Is it Depositor Friendly or a Danger to Bank Deposits?

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After introducing historic Demonetization and GST, the Union Government is all set to enact the Financial Resolution and Deposit Insurance Bill.

The Bill was presented in Lok Sabha in August and it has been referred to the Joint Committee of Parliament.

This Bill introduces the provision for a “Bail-in” by which depositor’s money to be used by financial institution to pay out their bad lending even without the consent of depositors.

The object of the Bill is to fully protect the financial interest of the financial institutions and Banks.

The Bill enables financial entity to use depositor’s money to resolve bankruptcy situations of the entity.

The FRDI Bill proposed for the establishment of Resolution Corporation entrusted with powers of transfer of assets to a financial entity. It also allows merger, amalgamation of asset and even an initiative of Liquidation which can be initiated by the financial firm with the permission of the National Company Law Tribunal.

The “Bail-in” empowers the banks to cancel the liability owed by the bank by absorbing the deposits and securities lying in bank, in case of failure of payments by creditors.

The “Bail-in” Clause makes the Bill less depositor’s friendly as this will enable banks to convert the nature of bank deposits, modify or change the terms or change the forms of the asset even without the consent of the depositors.

The proposed law will directly affect savings in the country and it may keep people away from the banks.

The “Bail-in” provision could lead to corruption as banks may garb depositor’s money in the shadow of adjusting their ailing accounts. This clause may result in loss of rightful control over deposits and savings by account holders. This bill may bring fear in the mind of bank depositors toward the safety of their hard earned money.

In an attempt to reconcile the hue and cry over the Bill, The Government said that Bill is depositor friendly and it will not adversely affect or modify existing protections granted to the depositors. The Government says the Bill will provide additional protections to the depositors in more transparent manner.

Finance Minister Arun Jaitley also assured that the Bill will protect the rights of the depositors.

Section 55(2) (B) also reduces the worries of depositor as it says “only those liabilities can be “Bail-in” whose contract says it can be Bailed-In.”

The provisions of Bill make it more burdened over the depositors and account holders in bank than to provide security of cash depository of the general public.

The people may avoid to deposit Cash in banks or other financial institution and may try to find alternative to invest their money elsewhere.

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