FRDI Bill’s bail-in clause worries labour ministry
Officials say move may impact medical benefits under ESIC
The Union labour and employment ministry has raised concerns about the ‘bail-in’ clause — under which bank deposits can be used for helping failing public sector banks (PSBs) to stay afloat — in the Financial Resolution and Deposit Insurance (FRDI) Bill.
This is perhaps the first time the clause has drawn flak from within the government, which is facing criticism from other quarters as well.
The ministry has represented that a substantial chunk of money kept in fixed deposits of PSBs for providing medical benefits under the Employees’ State Insurance (ESI) scheme to around 30 million employees will be rendered unsafe due to this clause.
Union Finance Minister Arun Jaitley had in August last year introduced in the Lok Sabha the FRDI Bill, which proposes a comprehensive resolution framework to ensure that in the case of financial institutions, including banks and insurance companies, failing, there was a system of resolution for their revival or closure.
This is for the first time that a Bill has proposed a clause that involves using depositors’ money to infuse capital into ailing financial institutions.
“A large portion of ESIC (Employees’ State Insurance Corporation) deposits is kept as fixed deposits in PSBs. This is money collected from employers and employees for extending medical benefits to workers that will come under threat. A bail-in clause is different than bail-out where the government steps in to rescue failing financial institutions. The former is a hands-off approach,” said a senior labour and employment ministry official.
Around ~460 billion, which constitutes 77 per cent of its corpus, was invested by the ESIC in PSBs’ fixed deposits till March 31, 2017.
The remaining money, in the fund of ~594 billion, was invested as special deposits with the central government in 2016-17.
“The ESIC is supposed to look after the interests of the workers, who are its contributors. If a portion of the ESIC’s corpus is converted into equity of banks through the bail-in clause, it will become difficult to extend medical benefits committed to stakeholders as the money will become inaccessible,” said a senior ESIC official.
The ESIC is mandated to invest 75 per cent of its funds in PSBs. “This is workers’ money, which should be protected,” the official said.
The ministry has raised these concerns before a joint parliamentary committee of both the Houses, which is examining the Bill and holding discussions with stakeholders and the finance ministry, according to government sources.
The panel, headed by Rajya Sabha Member Bhupender Yadav, will likely present its report to Parliament on the last day of the upcoming Budget session.
The central trade unions, too, have opposed the clause. “We have demanded the finance ministry withdraw clause 52 (related to bailin)... This should be only applicable to private sector banks. Workers stand a risk of losing their hardearned money because of this proposal. We have strongly opposed it,” said Rashtriya Swayamsevak Sangh-affiliated Bharatiya Mazdoor Sangh President C K Saji Narayanan.
The ESI scheme applies to all factories and establishments, including shops, hotels, restaurants, cinemas, and road transport undertakings, employing at least 10 workers. While 4.75 per cent of a worker’s monthly salary goes towards ESI as the employer’s contribution, 1.75 per cent of the income is the employee’s share. Workers drawing a monthly salary of up to ~21,000 are entitled to medical benefits owing to sickness, disability, and death due to an occupational disease or work-related injury along with maternity benefits. ESIC dispensaries and hospitals are present in 503 of the 686 districts in India and around 29.3 million workers were insured under the ESI scheme till March 31, 2017.
The Union government has, in the last couple of months, issued a series of clarifications to allay concerns over the clause. Jaitley had assured the Lok Sabha last month that “the government is very clear” that it would “fully protect” depositors’ money in case a PSB fails.
“Bail-in will be only sparingly used. PSBs will effectively not be subject to bail-in provisions. Depositors need not have any apprehensions,” Department of Economic Affairs Secretary Subhash Chandra Garg said earlier this month.
Bail-in amounts to holders of liabilities bearing a part of the cost of resolution and it is one of many resolution tools in the FRDI Bill, including acquisition and merger, the finance ministry had said in a statement on January 2.