FRDI Bill 2017: Govt will fully protect public deposits in banks, says Arun Jaitley

Finance Minister Arun Jaitley on Monday said the government will fully protect bank deposits of the public in an attempt to allay fears over a clause in the new financial resolution and deposit insurance (FRDI) Bill that is seen by some experts as a potential danger to funds held in savings accounts. Jaitley said the government's massive Rs 2.11 lakh crore plan to infuse capital into public sector banks was to strengthen them and there was no question of any bank failing. If any such situation arises, the government will fully protect the deposits made by customers. The government is very clear about it, he added.

Jaitley made the comment to allay concerns over the bail-in clause in the FRDI Bill, 2017, first introduced in the Lok Sabha in August this year and currently undergoing scrutiny by a joint parliamentary committee. The so-called bail-in clause in the draft legislation has been commented upon by experts as being potentially harmful to deposits held in savings accounts.

This is the second time the Finance Minister clarified the doubts over FRDI Bill. Last week, the Finance Ministry issued a statement saying that "the provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide additional protections to the depositors in a more transparent manner."

This statement came in the backdrop of media reports about an online petition against the proposed bill on Change.org that got more than 40,000 signatures in 24 hours. Over 100,520 people have signed the petition so far.

A bail-in is a way to rescue an ailing bank or a financial institution by making its creditors and depositors take a loss on their holdings. The finance minister's statement comes in the backdrop of fears that the provisions in the Bill could get extended to bank deposits. Jaitley said rumours are being spread about the provisions of the bill. 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 banks from going bankrupt. It would do this by writing down of the liabilities, a phrase some have interpreted as a bailin. The draft bill empowers Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability.