Assocham seeks removal of 'bail-in' clause in FRDI Bill

New Delhi: Industry chamber Assocham on Thursday sought removal of the "bail-in" clause in the draft Financial Resolution and Deposit Insurance (FRDI) Bill.

It said the panic among the bank depositors has arisen largely due to "bail-in" provisions in the FRDI Bill, cautioning that the trust in the banking system runs the risk of being eroded if the clause is not done way with.

The draft bill envisages a 'Resolution Corporation' which would prevent banks from going bankrupt by "writing down of the liabilities", a phrase some have interpreted as a "bail in".

Prime Minister Narendra Modi on Thursday said the government is working to protect interest of bank customers and their deposits, as he sought to dispel rumours regarding the proposed FRDI Bill.

"The government's assurance notwithstanding, Sub-section 7 of Section 52 of the proposed law clearly says that the bail-in, to which depositors have strong objection to, shall not be applicable to deposits to the extent only covered by insurance," said the chamber.

In a statement, it said the intention seems to be that it should not always be the government which should take a hit for the bail-out of a bank in trouble; and let the shareholders and other stakeholders, which include even the depositors (above the limit of insured amount) be responsible for saving a financial entity.

"Now as of now, the deposits are covered only up to Rs one lakh, which is a measly sum for millions of middle class families which have kept their life time savings in bank deposits," it said.

Assocham Secretary General D S Rawat said in the Indian context, the concept of "bail-in" especially by depositors should be completely done away with and their monies in the banks have to be protected at any cost.

"Otherwise, the trust in the banking system runs the risk of being eroded and the savings by the households would find way into unproductive avenues like real estate, gold, jewellery and even in the unorganised and informal financial markets run by unscrupulous people," he said.

He said the middle class families and especially the pensioners and other old-aged people have no social security and the bank deposits are their only financial security.

The so-called "bail-in" clause in the draft Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 has been commented upon by experts as bringing potential harm to deposits, in the form of savings accounts.

The draft law, which was introduced in the Lok Sabha in August, is currently undergoing scrutiny by a joint parliamentary committee.

The FRDI Bill proposes 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 '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 Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability.