The govt has stressed that 70% of deposits are in public sector banks and most of the remaining deposits are in well-capitalised and sound private banks.
Economic Affairs Secretary Subhash Chandra Garg stressed that attempts to create scare regarding the bail-in provision in the FRDI Bill were totally unfounded. 70% of deposits are in public sector banks and most of the remaining deposits are in well-capitalised and sound private banks, he added.
The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 has a bail-in clause. It has been proposed as one of the resolution tools in case a bank becomes insolvent, wherein depositors will have to bear a part of the cost of the resolution by a corresponding reduction in their claims. This has stoked fears among depositors.
The Bill proposes to set up a ‘Resolution Corporation’ (regulatory body) to help prevent banks from going bankrupt through “writing down of the liabilities”, a phrase that has been interpreted by analysts as a “bail-in”. The Bill is now being examined by a joint committee of Parliament.
Garg said that the safeguards for depositors will only rise under the provisions of the bill. “Bail-in will be only sparingly used. Public sector banks will effectively not be subject to bail-in provisions. Depositors need not have any apprehensions,” he said on Twitter. The provisions relating to bail-in and insurance of deposits have been opposed by trade unions. Some Opposition parties have termed these as anti-people too.
However, the finance ministry has said insured deposits of banks cannot be used in case of bail-in. The bail-in instrument designed by the Resolution Corporation will be subject to government scrutiny and even parliamentary oversight. Even the cancellation of the liability of a depositor beyond the insured amount will be done only through prior consent of the depositor.
“Bail-in power can be used in a judicious and reasonable manner only by the Resolution Corporation and it will have to ensure that all creditors, including uninsured depositors, get at least such value which they would have received in the event of liquidation of a bank,” an official statement had said earlier. It was also made clear that depositors will have the right to compensation from the Resolution Corporation if they get less money due to the insolvency process than what they would have got in case of liquidation of the bank.
Deposits up to Rs 1 lakh will continue to be insured under the Bill. The finance ministry has said that the rights of uninsured depositors will be better protected after the passage of the Bill. “The uninsured depositors, that is, beyond Rs1 lakh, of a banking company are treated on a par with unsecured creditors under the present law and paid after preferential dues, including government dues, in the event of its liquidation. As per the provisions of the FRDI Bill, the claims of uninsured depositors in the case of liquidation of a bank will be higher than those of the unsecured creditors and government dues. Therefore, the rights of uninsured depositors will be better protected and such depositors will have an elevated status in the FRDI Bill compared to the existing legal arrangements,” it said.
Source: Financial Express