0.1672
900 319 0030
x

Withdrawal of FRDI Bill

iasparliament Logo
July 20, 2018

Why in news?

Union government has decided to withdraw the Financial Resolution and Deposit Insurance (FRDI) Bill.

What is FRDI Bill?

  • It aims to limit the fallout of the failure of institutions like banks, insurance companies, non-banking financial companies, pension funds and stock exchanges.
  • The FRDI Bill is aimed at insuring the money of a bank’s depositors in the case of an eventuality where the bank would have to be liquidated.
  • Bail-in clause of the bill gives banks the authority to issue securities in lieu of the money deposited.
  • According to this insurance option covers only Rs.1,00,000 of the principal, the remainder of the sum deposited with a bank will be converted to tradable financial assets which can be redeemed.

What are the reasons behind the withdrawal of the bill?

  • Objections - The Union cabinet decision follows strong objections from several quarters about quite a few provisions of the Bill.
  • Unions of workers in nationalised banks and in state-run insurance companies were particularly vociferous in their objections.
  • Poor drafting - The bail-in provision was poorly drafted, with insufficient transparency in the text.
  • There was also ambiguity about the scope of deposit insurance, Given that, this provision served as a poison pill for the Bill as a whole.
  • Concerns about the "Bail-in" provision - “Bail -in” of the FRDI Bill had simply become too strong and, in the absence of any coherent defence from the Bill's backers in the government.
  • It had also become too dangerous for confidence in the banking system overall.
  • In particular, there were concerns that the bail-in provision would lead to depositors losing their money.

What is the way forward?

  • The government has not abandoned the notion of insolvency legislation for the financial sector altogether.
  • It will be important for work to start instantly on drafting a new Bill that serves the purposes that the FRDI Bill was supposed to.
  • Hopefully, the new Bill will have clearer provisions for depositor protection.

 

Source: Business Standard

Login or Register to Post Comments
There are no reviews yet. Be the first one to review.

ARCHIVES

MONTH/YEARWISE ARCHIVES

Free UPSC Interview Guidance Programme