CENTRE ALLAYS FEARS ON BAIL-IN

Petition against ‘bail-in’ clause reaches 24,000 within 24 hours since it was started

The FRDI Bill, under consideration of a joint parliamentary committee, is depositor friendly and provides more protection to them compared to existing provisions, the finance ministry said on Thursday allaying fears over the 'bail-in' provisions .

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 — FINANCE MINISTRY STATEMENT

Amid apprehensions that Financial Resolution and Deposit Insurance Bill, 2017 (FRDI) may result in people losing their hard earned savings in case of a bank failure, finance ministry on Thursday claimed that the bill as introduced in the Parliament does not modify present protections to the depositors “adversely” at all.

“The government’s implicit guarantee for public sector banks remains unaffected,” finance ministry said in a statement.

The FRDI 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, it said.

The Bill introduced in the Lok Sabha in August 2017, is presently under the consideration of the Joint Committee of Parliament.

The controversy is about “the bail in” provision in the FRDI, which some analysts say may mean that creditors and depositors have to absorb losses in case of a bank failure. This has raised concerns that common people may have to bail out banks with their hard-earned money if a bank goes under.

Currently under the Deposit Insurance Corporation Act, a maximum of `1 lakh of every depositor in banks is insured in case a bank goes bust.

But, FRDI proposes a ‘Resolution Corporation’ in association with regulator will determine the amount of money of people to be insured in case of bank failures. It is assumed resolution corporation may even increase the limit of money insured which is currently `1 lakh in case of bank failure or may decrease it in consultation with RBI (which in that case will go against popular sentiment).

However, the bill says that the provision of bailin will not be applicable on “any liability owed by a specified service provider to the depositors to the extent such deposits are covered by deposit insurance.”

This provision, some analysts say will mean that the money which is insured will not be subject to a hair cut or bailin. This is same as what is the current situation. However, the government has not properly given any explanation on this in its statement issued on Thursday and there is ambiguity which is resulting in anxiety.

The ministry in the statement said that certain misgivings have been expressed in the media 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 additional protections to the depositors in a more transparent manner,” it said.

The ministry also said that the Bill is far more depositor friendly than many other jurisdictions, which provide for statutory bail-in, where consent of creditors and depositors is not required for bail-in. “Indian Banks have adequate capital and are also under prudent regulation and supervision to ensure safety and soundness, as well as systemic stability. The existing laws ensure the integrity, security and safety of the banking system,” said the ministry.

It pointed out that in India, all possible steps and policy measures are taken to prevent the failure of banks and protection of interests of depositors. “The 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,” added the ministry.

Already an online petition, started by Shilpa Shree, against the against the bail-in provision in the Bill has gathered 40,000 signatures.