After months of rumours and criticism, the Bharatiya Janata Party-run government has decided to withdraw the Financial Resolution and Deposit Bill, which was primarily aimed at creating a process for the government to deal with bank failure. The decision has not been received kindly by those who believe it is vital for the banking system, already reeling under the weight of tremendous non-performing assets. Others have suggested that infighting between the government and the Reserve Bank of India led to the Bill’s withdrawal. But, by most accounts, the government’s decision seems to have been a political one, a response to the public fears about the proposed law.

Those fears mostly coalesced around one portion of the Bill: Clause 52. This section permitted an authority to convert deposits into shares as part of a process of resolution for a bank that has failed. This would mean depositors would lose control over their money, for a certain time period, and would have to hope that the resolution process is successful enough that their savings are actually returned to them.

Despite the government’s efforts to reassure the public, this section of the Bill was understood in quite simple terms: Your savings could be used to bail out a bank, and there is no guarantee that you would get your money back.

Now this was not likely to actually happen. That is partly because India has not seen any private banks failing, while public banks can expect the government to prevent them from doing so. The government took pains to explain this point, insisting that depositor money was safe, and no bank or resolution authority would be allowed to leave an individual’s savings in a worse place than it was before. And as many have pointed out, an important aim of the overall legislation was to protect depositor interests and the financial system. Yet the message didn’t stick.

‘Heartless duo’

The local media, union leaders, some politicians, commentators and, most pervasively, WhatsApp forwards raised the spectre of a bank that would go kaput and use depositor money to bail out the promoters, without consumers getting any of their savings back. That these rumours went around at a time when news about non-performing assets was dominating headlines, along with stories of rich indebted businessmen like Vijay Mallya and Nirav Modi fleeing the country, only helped spread them further. The shock to the banking system that was demonetisation would also have contributed to a lack of trust in the government’s plans.

“This tsunami will wipe out your money lying in the banks,” began one viral WhatsApp message that was signed by a Chartered Accountant in Mumbai, which blamed Prime Minister Narendra Modi and Finance Minister Arun Jaitley. It claimed, “When the banks make hefty profit, you don’t get anything but when they are into losses, suppliers & depositors have to lose their money. And the heartless duo of Modi & Jaitley have come up with yet another brutal aspect. Just unbelievable.”

The government’s attempts at calming fears did not go very far, so the Bill was sent to a Joint Committee, even as Jaitley continued to convey to the public that there was nothing to be afraid of. There was some hope that the panel might be able to make appropriate tweaks to the Bill, even as the furore about the bill blew over. But the fears did not go away, and the government has now decided to do away with the Bill altogether.

Legislative u-turns

This sort of legislative about-turn has been unusual under Narendra Modi, though there have been plenty of u-turns in his policies. In this session of Parliament itself the government had planned to make amendments to Right to Information Act, but then decided not to in the wake of protests from the Opposition and civil society. But that debate was confined to a specific section and seemed mostly tactical.

The FRDI Bill is more reminiscent of the government’s u-turn over the Land Acquisition Act amendments, back in 2014. That was one of the first things Modi attempted to do, with the aim of altering the previous government’s law to make it easier for business to acquire land. Indeed, his government was so confident of these changes that it promulgated an ordinance on the presumption that its brute majority in Parliament made the legislative side of things a mere formality. Instead, the Opposition was able to mobilise farmers in particular to take on the government over fears that their land would be taken without fair compensation, and Modi eventually had to relent.

Industrialists & Modi

In both the Land Acquisition Act amendments and the FRDI Bill, the government attempted to convince the public that the legislation actually had their best interests at heart. In the first instance it was Modi himself who expended political capital, attempting to reassure farmers that he intended to give them a fair deal. In the second, it was mostly Arun Jaitley who was trotted out to assuage the middle class.

Failure in both cases revealed a weakness on one aspect: The government’s alleged proximity to businessmen. In the former, attacks against the amendments came as part of the Congress ‘suit-boot’ jibes. This time around the rumours came coupled with talk of Mallyas and Nirav Modis. Yet they served as reminders that the public, which may otherwise still consider Narendra Modi an able leader for he country, doesn’t trust him on this front.

The Opposition has already attempted to exploit this line, with the Congress in particular pushing the ‘Adani-Ambani’ line and aiming to make the lack of transparency in the Rafale deal the centrepiece of its attack on Modi. Last week, the prime minister tried to deflate these attacks, saying he is “not scared of meeting industrialists in public”, since his intentions are honest, as compared to those who prefer to do work behind closed doors.

The line, delivered at an event featuring businessmen in attendance, made its audience – and India Inc in general – happy, but has not really been amplified by the rest of the party. Will Modi make the same argument at a campaign rally? Will it work? It is unclear as yet how the public will take this attempt to nullify the Opposition accusations about Modi’s proximity to businessmen. But, if the way Modi’s government has been forced to withdraw FRDI Bill is anything to go by, it is likely that simply falling back on the promise of “honest intentions” will not be sufficient enough to dispel the notion that his government is not trustworthy when it comes to banks and businessmen.