The Union Cabinet, chaired by Prime Minister Narendra Modi, has given its nod for withdrawal of the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, they added.
The government is likely to withdraw the bill from the Lok Sabha in the current session of Parliament, which ends on August 10.
The bill, introduced in the the lower house on August 11, 2017, has a ‘bail-in’ clause, which some experts say has the potential to harm deposits in savings bank accounts.
With concerns expressed by both politicians as well as stakeholders, the government had then referred the bill to a Joint Parliamentary Committee. The panel was slated to submit its report by the last day of the ongoing Monsoon session.
Stakeholders have expressed concern about the ‘bail-in’ clause in the FRDI Bill, even as the government sought to allay the concerns.
The clause has been included in the bill as one of the tools for resolution for bank failure. It provides for depositors to bear a part of the cost of the resolution by a corresponding reduction in their claims.
This provision had raised concerns that deposits could be used to bail out failing banks.
In January, Economic Affairs Secretary Subhash Chandra Garg had said that attempts to create scare regarding bail-in were totally unfounded. “70 per cent deposits are in PSBs. Most remaining deposits are in well capitalised and sound private banks. No likelihood of bail in for over 98 per cent of depositors. Remaining also subject to bail in if the depositors consent,” he had tweeted.
The FRDI Bill also proposes to create a framework for overseeing of financial institutions such as banks, insurance companies, non-banking financial companies (NBFCs) and stock exchanges in case of insolvency.
The ‘Resolution Corporation’, proposed in the draft bill, would look after the process and prevent the banks from going bankrupt. It would do this by “writing down of the liabilities”, a phrase some have interpreted as a “bail in”
The draft bill empowers the Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability.