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.
“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,” the government said in a statement on Thursday.
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.”
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 is far more depositor friendly than many other jurisdictions, which provide for statutory bail-in, where consent of creditors/depositors is not required for bail-in,” the statement added.
The government added that 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.
“Indian Banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability,” the statement said. “The existing laws ensure the integrity, security and safety of the banking system. In India, all possible steps and policy measures are taken to prevent the failure of banks and protection of interests of depositors (e.g. issue of directions/prompt corrective action measures, capital adequacy and prudential norms).”
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.
EOM
