Govt dismisses misgivings about proposed bail-in facility for banks

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In a statement released to the press, the finance ministry has clarified the existing provisions of deposit protection guarantee will be maintained in the proposed FRDI Bill as well. "Principal guarantee for PSU Banks' depositors come from government ownership which also remains completely unaffected", Garg said.

"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".

The Bill, which was introduced in the Lok Sabha in August this year and is before a parliamentary standing committee, was earlier expected to be tabled in the winter session of Parliament.

"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. They say the law will put common people's money in jeopardy. As of now, the depositor is ensured to the extent of Rs. 1 Lakh in case of bank failure and there was a demand from stakeholders to increase this amount citing this as too low for anyone who might be depositing his entire life's hard-earned money.

In the case of a bank failure, this proposed corporation will provide deposit insurance up to a certain limit, which has not been specified. It is assumed resolution corporation may even increase the limit of money insured which is now Rs 1 lakh in case of bank failure or may decrease it in consultation with RBI (which in that case will go against popular sentiment). The Bill has been criticised for some of its controversial provisions, including a bail-in clause which suggests that depositor money could be used by failing financial institutions to stay afloat. Govt. of India has introduced a bill which may take away the power of the depositor over their money. This is same as what is the current situation.

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The statement comes in the wake of "certain misgivings that appeared in the media about 'bail-in" provisions of the FRDI Bill, 2017.

The Finance Ministry however said that the Billis far depositor friendly when compared to other countries which provide for statutory bail-in without consent of creditors and depositors. The government is of the view that Indian banks have adequate capital, and extant regulations and oversight to ensure security and safety now.

R.V. Verma, Former National Housing Bank Chairman, told BusinessLine that a bail-in provision in FRDI Bill will compromise depositors' interests, affecting their confidence in the banking system.

The FRDI Bill not only provides for "bail-in", but also other options to bring resolution to the financial firms on the brink of failure.

Meanwhile an online petition against the bail-in provision in the FRDI bill has got thousands of signatures.

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