October 2018
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Govt withdraws FRDI bill in Parliament following backlash
New Delhi: The government on Tuesday withdrew the controversial Financial Resolution and Deposit Insurance (FRDI) bill following widespread criticism of its controversial provisions, including a “bail-in” clause that suggests depositor money could be used by failing financial institutions to stay afloat.

The lack of clarity over protecting existing levels of deposit insurance for smaller deposits also led to a lot of criticism.At present, deposit insurance is available for all deposits of up to ?1 lakh but there was no clarity on whether it will be continued in the bill.Minister of state for finance Pon Radhakrishnan moved the proposal for withdrawal of the bill in Lok Sabha, which was accepted by the House.

The FRDI bill, 2017 was tabled in the Lok Sabha in August 2017, following which it was referred to the joint parliamentary committee. It was brought in to limit the fallout of the failure of institutions such as banks, insurance companies, non-banking financial companies, pension funds and stock exchanges.

However, opposition parties termed some of the bill’s provisions anti-people and anti-poor and pointed out that people’s money will be used to bail out banks that make bad lending decisions through a corresponding reduction in the claims of depositors.The government vociferously defended the provisions of the bill for months, pointing out that the bail-in clause will not adversely impact depositors.

The government had maintained that the implicit sovereign guarantee for state-run banks remains unaffected. Prime Minister Narendra Modi had also sought to assure people that the bill was consumer friendly and will protect the public’s deposits.

Last week, Union finance minister Piyush Goyal had informed the joint committee that the public had expressed concerns over the provisions of the bill, including the use of the bail-in instrument to help a failing bank, the adequacy of deposit insurance cover and the need to revive insurance limits substantially, and application of the resolution framework for public sector banks. Goyal said that the resolution of these issues would require a comprehensive examination and reconsideration.

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