FRDI Bill, if passed by the Parliament, has the potential to harm our deposits, the banking system and the economy of this country.
If your bank is about to fail due to the weight of bad loans, the bail-in provision will convert your deposit (beyond the insured amount) into equity and you can be made shareholders with/ without your consent.
Insured amount is not defined in the Bill. The current one lakh will be nullified by the passing of this Bill.
If your bank is small and has more NPA, the Bill still has the right to selling its assets, handing it over to a temporary institution for a year (bridge service provider), merging it with another bank or by liquidating it.
This Bill rests this authority to the Resolution Corporation (RC) which will decide the fate of your deposits. If your bank is in imminent or critical risk as per Bill’s definition, even RBI will have no power over RC.
In the name of protecting the tax payer’s money the government is asking those very people to pay for the failure of big corporate companies not able to pay their loans.
The common people of this country had to suffer through demonetisation, GST, growing unemployment and underemployment while the rich and powerful enjoy tax cuts and write-offs of their loans. This Bill blatantly asks the poor to pay for the mistakes of the rich and powerful.
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As concerned citizen I urge you to repeal the Financial Resolution and Deposit Insurance (FRDI) Bill 2017, as it will have serious implications on me as an individual depositor and on the banking sector at large. As you might be well aware, the Bill was introduced in the Parliament on August 10, 2017, the penultimate day of the last session, without any discussion and is under consideration of a Joint Parliamentary Committee. The Joint Committee on the Financial Resolution and Deposit Insurance Bill, 2017 was constituted on 19 August 2017 under the Chairmanship of Bhupender Yadav (BJP) and is mandated to submit its report during this session. There are certain provisions in this Bill which I feel are cause for concern:
This Bill seeks to establish a Resolution Corporation (RC) as provided for in Chapter 2 of the Bill. The RC would have sweeping powers to order amalgamation, merger, liquidation and acquisition of any financial institution which includes nationalised banks, regional rural banks, co-operative banks and payment banks, any insurance company, other nationalised general insurance companies and any non- banking financial institution if, in its opinion, the concerned institution’s risk to viability is at imminent or critical levels.
The Resolution Corporation has the final say in any disagreement with any of the regulators of financial institutions (RBI, IRDA, SEBI etc). Such authoritarian powers to one body, on institutions like public banks and government owned insurance companies, which was built with tax-payers money over the past several decades would be suicidal for our economy
This Corporation will replace the Deposit Insurance and Credit Guarantee Corporation (DICGC) as the principal agency to provide deposit insurance. As of today DICGC has insured an amount of one lakh which will be withdrawn through the FRDI Bill. The Bill does not however mention a new amount, but has left the role of fixing deposit insurance to the Resolution Corporation.
Six out of the eleven members of the Board of the Resolution Corporation are appointed by the central government. Hence the autonomy of the Resolution Corporation that has discretionary power above all existing regulators (RBI, IRDA, SEBI etc) is questionable.
According to Section 48(1) (c), the RC can choose to resolve a financial service provider classified as critical risk to viability through a bail-in. Bail-in refers to a situation wherein, the depositor’s money, beyond the insured amount, can be converted into equity and the depositors can be made shareholders with/ without their consent. This means that working class depositors will have to bear the brunt and sacrifice their hard earned savings for the greater good of saving politically manipulated banks and their inept or wilfully defaulting borrowers.
The Bill also suggests “mergers” as one of the tools to resolve financial institutions. Mergers in banks have not helped them in resolving their crisis of bad loans, but it has increased logistical and administrative chaos. Given that even today a large section of the population is outside banking sector, we need more bank branches not reduce the existing ones.</li>
<li>Section 65(1) states “Notwithstanding anything in any other law for the time being in force, no proceeding for liquidation of a specified service provider shall be entertained by any court or tribunal other than the Tribunal, in accordance with the provisions of this Act.” Section 133 also prohibits constitutional remedies by preventing courts and Tribunals from entering any proceedings for liquidation of a service provider.</li>
<li>The Corporation according to this Bill can act with impunity and the only appellate body is the National Company Law tribunal (NCLT), which is highly understaffed compromising only 11 benches, 16 judicial members and seven technicians. A similar restriction is imposed on the employees who are terminated under this Act, that they cannot avail judicial relief. Proposing such a provision in the Bill will put up restrictions on the judiciary and abridge peoples’ rights, which make this provision unconstitutional.
This Bill is coming in the wake of unprecedented crisis of unpaid loans of corporates which have become Non-Performing Assets (NPAs). The problem of NPA is a culmination of changing lending policies to encourage large scale lending and failure of the companies (including some who are wilful defaulters). The crisis of NPA to this extent is a policy failure on the government and Reserve Bank (as the primary regulator). Through this Bill, the government is asking the common people to pay the prize for failure of big corporates. This Bill will affect public sector banks, especially smaller banks and co-operative banks, that are in bad shape and co-operatives banks the most.
<p>The majority of the banked population in the country has their deposits with the public sector banks. It is because they feel safe by the sovereign guarantee that is implicit and do not fear of losing their hard earned money. In a primarily savings and deposit based banking system, it is important to have the trust of the people. On one hand the government through its policy like Jan-Dhan bringing people into the fold of banking and on the other through FRDI introducing liquidation and bail-in.
In the recent past we have witnessed sudden policy changes like the introduction of demonetisation without prior warning that has caused untold misery on the lives of people. Similar moves like passing the GST or the Finance Bill as a money Bill have all given people reasons to apprehend any drastic move without much thought or concern for people’s lives and livelihood.
This Bill has been criticised by the bank unions and civil society. Now even some of the political parties too have taken a position to repeal the FRDI Bill. As my representative, I would urge you to vote against this and demand its immediate repeal.
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