‘No Decision Taken To Reintroduce FRDI Bill’, says Govt, Doesn't Rule It Out Either
Moneylife Digital Team 28 July 2020
The ministry of finance has issued a rare clarification to say that the Union government has not taken any decision to reintroduce the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill). This follows panic caused by social media messages about mounting non-performing assets (NPAs) of banks following the coronavirus (COVID) pandemic and the fear that bank deposits would be impounded to recapitalise banks. The Reserve Bank of India (RBI) governor had also alluded to the need for this Bill at a recent conclave. 
 
However, the government makes no mention of the Financial Sector Development and Regulation (Resolution) Bill, 2019 (FSDR), which was scooped by Moneylife in December 2019. This Bill had modified the earlier FRDI Bill and removed direct reference to the controversial ‘bail-in’ clause while authorising a Resolution Authority to modify all contracts – presumably those with depositors as well. Moneylife had also seen a copy of the briefing note from the finance ministry to the Union Cabinet. 
 
Interestingly, the government clarification does not say that plans for such a legislation have been shelved, but only that there was ‘no decision’ on the issue.  It is however clear that the current panic among depositors is rather premature, but their fears also indicate that any hasty action to bring a draconian bill without taking people into confidence will backfire badly. 
 
The FRDI Bill was introduced in Lok Sabha on 10 August 2017 and, then it was referred to the Joint Committee of Parliament (JPC) for examination and report thereon.
 
"The government had withdrawn the FRDI Bill in August 2018 for further comprehensive examination and reconsideration of the subject," the ministry had said.
 
The FRDI Bill had triggered panic among depositors over the controversial ‘bail-in provision’ which held out the threat of forcibly converting term deposits with banks (above a certain insured threshold) into equity to recapitalise failed banks. Perhaps the small investor did not believe government’s assurance, but the bail-in clause of FRDI punctured the trust of large numbers of small creditors, who feared benefit to the non-performing asset (NPA)-causing corporate borrowers responsible for around 80% of NPAs, at their financial cost.
 
However, as reported by Moneylife, the government has been trying to introduce revised Financial Sector Development and Regulation (Resolution) Bill, 2019 (FSDR), instead of FRDI.
 
Unlike FRDI, the FSDR draft is not available to the public, so one would wonder why FRDI was to be replaced by FSDR, which is aimed at the rescue of banks – among other financial institutions – from collapse.  
 
A briefing note prepared by economic affairs secretary, Atanu Chakraborty had made some astonishing assertions about the financial sector (Read: Moneylife Exclusive - FRDI Bill To Come Back as FSDR: Many Questions Unanswered)
 
The new Bill had covered a wide spectrum of financial entities including banks, insurance companies, financial market infrastructure, payment systems and other financial service-providers (excluding individuals and partnership firms) which are now scattered under different legislations. For the first time, it also covers cooperative banks and regional rural banks. 
 
It provided clearly defined triggers for prompt corrective action (PCA) framework to bring a problem institution into resolution. It also claims to cover a ‘systemic vacuum’ with regard to bankruptcy situations and will include the resolution of large non-banking finance institutions. 
 
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Comments
umeshs62
10 months ago
Without making any adverse comment on government, a strong & credible opposition party is important for democracy to thrive.
bala.mathur
10 months ago
If we had a responsible and sensible opposition in this country, drastic measures as FRDI Bill which are political suicides, would have never been even contemplated by any ruling party.
surajitghosh628
Replied to bala.mathur comment 10 months ago
Correct. The opposition party of the country is busy only China and ladhakh
alok.asthana
Replied to surajitghosh628 comment 10 months ago
Let us be thankful that at least someone is.
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