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HomeEconomyControversial FRDI bill being ‘fine-tuned’, likely to make a comeback in 2022-23

Controversial FRDI bill being ‘fine-tuned’, likely to make a comeback in 2022-23

Finance ministry in process of finalising certain provisions like the ‘bail-in’ clause, which had triggered uproar that forced the legislation to be withdrawn in 2018.

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New Delhi: The central government may reintroduce the controversial Financial Resolution and Deposit Insurance (FRDI) Bill in the next financial year, seeking to establish a resolution framework for a certain category of distressed financial institutions, including systemically important ones.

The finance ministry, it is learnt, is currently working on a fresh draft of the bill and is in the process of finalising certain provisions like the “bail-in” clause, which had triggered uproar over indications that customers of a failing financial institution would have to bear part of the cost of resolution by reduction in their claims.

“The consensus is yet to emerge, but it will not make much difference since 98 per cent of the deposits are fully protected under the law,” a senior government official told ThePrint on condition of anonymity.

Apart from this, the bill will also provide for establishing a resolution authority, which would have powers to undertake prompt resolution for banks, insurance companies and systemically important financial firms.

“The need to redraft the bill is felt as currently, there is no resolution framework for banks and systemically important financial institutions. The routine insolvency process will not be able to handle it if a bank were to collapse,” the official said.

The bill, which was first introduced in the Lok Sabha in 2017 and later referred to a joint parliamentary committee, was withdrawn in August 2018 after uproar among Opposition parties and unions of state-owned banks and insurance companies.

Last year, Finance Minister Nirmala Sitharaman had said that the government had not taken a decision to reintroduce the bill in Parliament.

The legislation will also provide for an insurance of up to Rs 5 lakh for bank depositors, which already has a legal backing.

The Lok Sabha had, in the last session of Parliament, passed a bill called the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, which ensures that bank account holders get up to Rs 5 lakh from the Deposit Insurance and Credit Guarantee Corporation within 90 days of the Reserve Bank of India (RBI) imposing moratorium on their banks.


Also Read: Good move by RBI to pick DBS to rescue Lakshmi Vilas Bank, govt should now bring FRDI Bill back


Discussions on supervisory powers

According to the government official, while the draft is ready, discussions are happening around whether the resolution authority will get supervisory powers and would not have to wait for the RBI’s direction to take action against a financial institution on the brink of insolvency.

In 2019, after the fall of Infrastructure Leasing & Financial Services Limited, the government, in consultation with the RBI, had brought in a special framework under which all non-banking financial firms over a Rs 500 crore asset size would come under the purview of the Insolvency and Bankruptcy Code (IBC) for resolution.

The government had then said that the special framework provided under Section 227 of the IBC for financial service providers would serve as an interim mechanism to deal with any exigency pending introduction of a full-fledged financial resolution mechanism for banks and other systemically important financial service providers.

(Edited by Gitanjali Das)


Also Read: The 5 factors that will determine the shape of the Indian economy in 2021


 

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