The proposed Financial Resolution and Deposit Insurance (FRDI) Bill has generated a lot of noise with bankers ,threatening to go on strike if the Center proceeds on the proposed legislation. Presently, under consideration of the Joint Committee of Parliament, the FRDI Bill aims to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services (NBFC) companies and stock exchanges in case of insolvency. The Bill was first introduced in the Lok Sabha in August this year.
The main cause of concern and confusion among depositors is the bail-in clause, where the financial firms/companies issue securities in lieu of the money deposited. It means, in case the firms financial situation deteriorates, deposits could be converted into securities such as shares of the bank. This proposed bail-in clause has raised a lot of concern among depositors who are worried that they may lose their deposits with banks.
Currently, Deposit Insurance and Credit Guarantee Corporation (DICGC) provides deposit insurance of up to 1 lakh and the rest of amount is forfeited in the rare event of a bank failure. In India, 67 per cent of term deposit accounts are of less than Rs. 1 lakh. Thus, even if any banks ever hypothetically fail, then it would not affect small depositors at all, as it is covered through insurance. In my opinion , The FRDI Bill will be a win-win for all with all such suggested changes to make it more depositor-friendly. Currently in India, there is no specialised law for the resolution of financial firms and in this context, the FRDI Bill, 2017 is a welcome change.
This post has been contributed by Saransh Vijay, a penultimate techno legal student at School of Law, UPES University.
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