The contentious legislation was introduced in Upper House in Aug 2017.
New Delhi: The Union Cabinet on Wednesday decided to withdraw controversial Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 which had raised anxiety among general public that their hard earned money would be used to bail out failed banks, said sources.
FRDI Bill was introduced in the Lok Sabha in August 2017. It was presently under the consideration of the joint committee of the Parliament.
Government is likely to withdraw FRDI Bill in the ongoing session of Parliament, said sources.
The FRDI Bill proposed 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 major controversy was about “the bail in” provision in the FRDI, which some analysts had said meant that creditors and depositors will have to absorb losses in case of a bank failure.
This had raised concerns that common people may have to bail out a bank in case it goes under.
Currently under Deposit Insurance Corporation Act a maximum of Rs 1 lakh of every depositor in banks is insured in case a bank goes bust.
But, FRDI proposed a ‘Resolution Corporation’ in association with regulator will determine the amount of money of people to be insured in case of bank failures.
Finance ministry had defended the bill saying 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,” it had said. It had said that prior consent of bank depositors will be need to cancel their liability beyond insured amount (currently Rs 1 lakh) in case of a bank failure in FRDI bill.
It had said that Resolution Corporation will have the option to design an appropriate bail-in instrument, which will be subject to government scrutiny and oversight of the Parliament.
In December last year, the then finance minister Arun Jaitley had asserted that the government was committed to protecting the interests of depositors in public sector banks (PSBs). In January, Econ-
omic 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.