Proposed Financial Resolution and Deposit Insurance Bill
A lot of fire and storm has been kicked by the proposed Financial Resolution and Deposit Insurance (FRDI) Bill even before it has been passed by Parliament leave alone being assented by President. There is a widespread perception that if a bank fails everyone will have to sacrifice and this includes the depositors and the part of the money which is not insured. It is argued that this Bill can’t be avoided as it is part of the G20 (Group of 20 countries) FSB (Financial Stability Board) requirement. We all know that India is a member of the FSB and G20. As a member, India had accepted that it would work out a resolution package. The whole idea of this proposed Bill is that if at any point of time a bank fails then how can they be saved?
To put it bluntly, this proposed Bill envisages that all the creditors will have to be part of the bail-in provision and depositors are also creditors. The bail-in provision in this proposed Bill is expected to eliminate haircut. If the bank survives, then the depositors including the non-insured deposits will get back the money. If it fails then they are bound to lose the money. This is why there is so much of hue and cry over it. Mamata Banerjee who is the Chief Minister of Bengal said that, “It is a travesty that the Centre as an owner of the nationalized banks is now trying to replenish the eroded capital of banks by forcibly taking away the small depositors savings instead of facing the crisis in the banking.
CM of West Bengal, Mamata Banerjee.