Finance Minister Arun Jaitley said on Thursday that the proposed Financial Resolution and Deposit Insurance Bill protects the rights of depositors, denying reports to the contrary. The FRDI Bill seeks to create a mechanism for resolving bankruptcy in banks and insurance companies, The Hindu had reported.
The bill will create a “Resolution Corporation” to classify financial establishments based on their risk factor – low, moderate, material, imminent and critical. In firms where the risk factor is critical, the corporation can take over the firm’s operations and decide on merger or acquisition, transferring the assets and liabilities to another firm, or liquidation. However, there is concern about how the depositors of a bank with a critical risk factor will be repaid.
The bill was tabled in the Lok Sabha in August. On Thursday, Jaitley said the “objective of the government is to fully protect the interest of the financial institutions and depositors.”
A release by the Press Information Bureau said, “The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. Rather, they provide additional protections to the depositors in a more transparent manner.”
The bureau also said that the bill does not limit the government’s power to extend financial support to banks, including public sector banks. It added that the Bill will instead “strengthen the [financial] system by adding a comprehensive resolution regime that will help ensure that, in the rare event of failure of a financial service provider, there is a system of quick, orderly and efficient resolution in favour of depositors”.