The Financial Resolution and Deposit Insurance Bill will protect the interests of depositors, but rumours are being spread about it, Finance Minister Arun Jaitley said on Monday. Jaitley’s clarification comes just days after the Finance Ministry made a similar assertion about the bill in a series of tweets and a press statement.
The bill, which is expected to be tabled in the Parliament in the upcoming winter session, will create a “Resolution Corporation” to classify financial establishments based on their risk factor – low, moderate, material, imminent and critical.
Firms with a ‘critical’ risk factor will be taken over by the corporation, which will decide whether to merge the firm, transfer its assets and liabilities to another firm, or liquidate it.
But there is concern about how the depositors of a bank with a critical risk factor will be repaid.
“About Rs 2.11 lakh crore is being pumped in to strengthen Public Sector Banks” Jaitley said on Monday. “So no such question [failure of banks] arises.”
Jaitley added that if banks do fail, the government will “fully protect” the deposits made by customers. “The government is very clear about it.”
On December 7, the ministry released a statement which also explained how the provisions of the bill will protect depositors.
“Besides providing similar protection /guarantee of Rs 1 lakh to depositors, as it exists today, the rights of uninsured depositors are being placed at an elevated status in the FRDI Bill compared to existing legal arrangements...”
The statement said the Bill will “strengthen the [financial] system by adding a comprehensive resolution regime”. This will 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”.