NEW DELHI: The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) goes beyond the current provisions to provide greater protection to depositors, the finance ministry has said defending the Bill that has raised apprehensions in some quarters.
The statement follows concerns regarding "bail-in" provisions of the Bill. "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 rather additional protections to the depositors in a more transparent manner," the statement said clarifying the provisions. Introduced in the Lok Sabha on August 10, the Bill is presently under the consideration of a joint committee of Parliament, which is consulting all the stakeholders on the provisions of the proposed legislation. The claim of depositors will be further strengthened as the FRDI Bill raises the order of priority for uninsured deposits above than unsecured creditors, central and state governments, a government official told ET.
"The objective of the Government is to fully protect the interest of the financial institutions and the depositors. The Government stands committed to this objective," finance minister Arun Jaitley had tweeted.
At present, bank depositors can be only protected to a limit of Rs 1lakh by the guarantee of Deposit Insurance and Credit Guarantee Corporation (DICGC), and remaining deposits over Rs 1 lakh are treated at par with claims of unsecured creditors, and in the event of liquidation of a bank, such depositor claims are only paid after preferential payments are made.
The FRDI Bill seeks establishment of a Resolution Corporation for protection of consumers. Deposit insurance powers and responsibilities will be transferred to the Resolution Corporation. "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 finance ministry's statement observed.
"Equity will absorb losses first and then subordinated debt will be bailed-in. The other liabilities including deposits maybe bailed in only after this," the official said, adding that in case of injudicious exercise of bail-in, the National Company law Tribunal (NCLT) may direct the Resolution Corporation to pay compensation to depositors. The FRDI Bill also mandates that the Resolution Corporation to send a report to the central government explaining the reasons why a bail-in instrument was required.
The ministry further noted that the Bill does not propose in any way to limit the scope of powers for the government to extend financing and resolution support to banks, including public sector banks. "The government's implicit guarantee for Public Sector Banks remains unaffected," it said adding that banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability.
"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 ministry said.