The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, which stirred a controversy over its clause that could result in the confiscation of a depositor’s money if the bank failed – called “bail-in” – has been deferred by the joint parliamentary committee which was supposed to submit a report on it for the Winter Session of Parliament.
The committee will now submit its report in the Budget session.
The Bill would have categorised a depositor as a creditor sans collateral, which would have meant that in the case of a collapse of the bank they would have to forgo their money. It would also have enabled the banks to re-package one’s deposits (including fixed deposits and mutual fund assignments) into special bonds yielding 5 percent or so.
One has to keep in mind the fact that banks do not give depositors any guarantee for the money they have put in their custody. The bank lockers, in which people faithfully put in their family jewels, aren’t secured by any documentation at all, hence remain completely uninsured. In the case of a bank failure, the bank’s will also have the liberty to encash these.
The controversial provision is contained in Section 52 of the FRDI Bill. While the FRDI wants to provide a way out for banks and other financial institutions in the case of insolvency, without the government having to step in to bail them out with public money collected through taxes, the flip side is that it could be disastrous for the ordinary depositor, who may have put in his life’s earnings in the banks.
This “bail-in” clause had created a hue and cry and a huge signature campaign. On Thursday even the industry chamber Assocham called for the removal of the “bail-in” clause, saying that the very trust that the banks live on will be destroyed through this.
Notably, the Bill came after some previous moves by the government – first the drive to get as many people as possible to open bank accounts, then demonetisation, forcing them to put their money in banks and go for cashless transactions which depends on money in banks, and then writing off some of the bank loans which had turned NPAs (non-performing assets) for the banks.