The Parliamentary Joint Committee will examine the controversial ‘bail in’ clause of the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 in the light of concerns being raised over the security of bank deposits and panic withdrawal of cash by depositors over the last few months.
Highly placed sources who are privy to the workings of the joint committee told ET that the issue will be examined closely even though the government may have issued a clarification on the same. The committee is set to hold its tenth meeting on Monday.
The FRDI Bill was referred to a joint committee of the Parliament which is consulting all the stakeholders on the provisions of the FRDI Bill. The committee has been asked to submit its report to Parliament by the last day of the Monsoon Session, 2018.
Sources, however, indicated that the committee is unlikely to finalise its recommendations before the winter session as complete political consensus is yet to be achieved on many concerns. The committee has already sought two extensions of time but ET has learnt it is likely to take longer to address all concerns related to the Bill.
The committee in its nine meetings has already heard out the representatives and officials of various stakeholder ministries, RBI, Competition Commission of India, Central Bureau of Investigation, Enforcement Directorate, the various chambers of industry and commerce, and banking associations, among others. Small Industries Development Bank of India (SIDBI) and Institute of Chartered Accountants of India are expected to submit their representations to the committee on May 14.
The FRDI Bill was introduced in the Lok Sabha on August 10, 2017 by the Modi government in a bid to establish a resolution corporation and a comprehensive resolution regime to enable timely and orderly resolution of a failing financial firm. The move, the government has stated, is being made as there is no comprehensive legal framework for resolution and liquidation of financial firms in India.
The FRDI Bill proposes to establish a resolution corporation and a comprehensive resolution regime to enable timely and orderly resolution of a failing financial firm.
FRDI Bill also introduces a menu of resolution tools, including transfer of whole or parts of the assets and liabilities of a financial firm to another person, acquisition, merger or amalgamation, bridge service provider, and bailin, and mandates recovery and resolution planning obligations to enable careful monitoring of risk to viability of a financial firm.
It is, however, Clause no 52 or the ‘bail in’ clause that has set in panic among bank depositors.
There have been fears that the depositors’ money could be used to bail-in banks and that has sparked off a round of sudden withdrawals in various parts of the country. The situation even caused the intervention of the Prime Minister and the Finance Minister who have clarified on the subject and said additional protection would in fact be brought in by way of the FRDI Bill.
“Bail in has been proposed as one of the resolution tools in the event a financial firm is sought to be sustained by resolution. Certain misgivings have been expressed in the media, especially social media, regarding the depositor protection in the context of ‘bail-in’ provisions of the FRDI Bill. These misgivings are entirely misplaced. The government always stands ready to take care of the capital needs of the public sector banks. Bail-in amounts to liabilities’ holders bearing a part of the cost of resolution by reduction in their claims. Bail-in is only one of many resolution tools in the FRDI Bill; others are acquisition, merger and bridge service provider, and is to be used either singly or in combination with other tools. Bail in provision may not be required to be used in case of any specific resolution. Most certainly, it will not be used in case of a public sector bank as such a contingency is not likely to arise,” a statement issued by the finance ministry in January this year said.