Bid to allay depositor concern
New Delhi: The government on Thursday came out in defence of its financial resolution and deposit insurance bill, stating the provisions are depositor friendly and provide additional protection.
The statement comes in the wake of certain misgivings doing the rounds about the "bail-in" provision in the Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill).
The provisions in the FRDI Bill do not affect current protections for depositors at all, the finance ministry held, maintaining that they rather provide additional protections in a more transparent manner.
"The FRDI Bill is far more depositor friendly than many other jurisdictions, which provide for statutory bail-in, where the consent of creditors or depositors is not required for bail-in," it added.
The bill, which is with a parliamentary committee since August this year, has brought in a concept coined by the European banking crisis of 2008-09, called "bail-in" where a bank's depositors are forced to bear some of the burden of recapitalising the lender by having a portion of their deposits written off.
Bondholders in Cyprus banks and depositors with more than 100,000 euros in their accounts were forced to write off up to half of their holdings during the European financial crisis.
The statement issued by North Block claimed, "At present, each depositor can be only protected up to a limit of Rs 1 lakh by the guarantee of the Deposit Insurance and Credit Guarantee Corporation. Deposits beyond Rs 1 lakh in a bank do not have any protection guarantee... the rights of uninsured depositors are being placed at an elevated status in the FRDI Bill compared with the existing legal arrangements."
However, the statement did not clarify how the depositors are better protected.
Bankers point out that the draft bill states that "the Resolution Corporation shall, in consultation with the appropriate regulator, specify the total amount payable with respect to any one depositor, as to his deposit insured under this act, in the same capacity and in the same right".
The government statement comes after an onlinepetitionon Change.org against the bail-in clause of the FRDI Bill, went viral on social media, getting some 40,000 sign-ups within 24 hours.
The government statement goes on to state that 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 government's implicit guarantee for public sector banks remains unaffected."
The bill is scheduled to be debated in the winter session of Parliament.