FRDI Bill: Centre offers to set a new cap on deposit cover – Business Line–14.02.2018

Reflecting a change of mind, the Centre has conveyed to a joint committee of Parliament deliberating on the Financial Resolution and Deposit Insurance Bill that it is ready to amend the legislation to “specifically state” an upper limit for deposit insurance.
On Monday, the committee on the FRDI Bill, headed by senior BJP leader Bhupender Yadav, discussed the government’s fresh stance with RBI Governor Urjit Patel. The Governor, however, favours the existing provision, where the deposit insurance is capped at ₹1 lakh. In a fresh note, the Department of Economic Affairs told the panel that the proposed Resolution Corporation, through the regulators, can specify the amount to be paid as premium by the entities. Patel, however, had apprehensions about the DEA’s stance.
“He told us that 91 per cent of bank customers are covered under ₹1 lakh. In terms of value, this is 29 per cent of the total deposits. He fears that if we raise the upper limit, banks will be burdened with higher insurance premiums. He would prefer the present system to continue. We have requested him to consider the DEA’s new stand…he said he will get back to us,” a panel member told BusinessLine on condition of anonymity. The DEA had earlier assured regulators and banks that Clause 29(1) of the Bill provides for enhancement of the deposit-insurance. In its fresh submission, the DEA is believed to have noted that the Bill does not mention explicitly that the current deposit coverage up to ₹1 lakh would be maintained. It added that the Bill may be amended to specifically state a limit for the deposit insurance coverage.
It is learnt to have suggested that an additional clause may be inserted in the Bill after clause (h) of sub section (2) of Section 145 as the total amount payable by the Corporation with respect to any one depositor, as to his insured deposit with an insured service provider, in the same capacity and in the same right, shall not exceed the total amount notified under second proviso to sub section (1) of section 16 of the the Deposit and Credit Insurance and Credit Guarantee Corporation (DICGC) Act of 1961, until the applicable amount is specified by the Corporation under sub section (1) of Section 29 of this Act.
“This will address the concern that an amount of ₹1 lakh, fixed in 1993, is too low and should be revised. Patel’s briefing helped us to understand that the RBI is not against the Bill, but is against certain clauses. The committee’s duty is to seek a consensus,” the member said.
The RBI had suggested that a new provision should be added to the FDRI Bill to ensure that the ₹1 lakh limit continues. The RBI pointed out that there is no clarity in the Bill on the time up to which a service provider will be required to pay resolution fee.
The member added that the committee is working with the Centre, regulators and other stakeholders for a consensus on clauses of the Bill, including the role of the proposed Resolution Corporation. BusinessLine had reported that the RBI, banks, stock exchanges, insurance companies and depositories had serious objections to various clauses of the Bill.
Published on February 13, 2018

via FRDI Bill: Centre offers to set a new cap on deposit cover – Business Line

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