About Bail-in:
A bail-in is a way to rescue an ailing bank or a financial institution by making its creditors and depositors take a loss on their holdings. The finance minister’s statement comes in the backdrop of fears that the provisions in the Bill could get extended to bank deposits.
About FRDI Bill:
The FRDI Bill proposes to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services (NBFC) companies and stock exchanges in case of insolvency.
The ‘Resolution Corporation’, proposed in the draft bill, would look after the process and prevent banks from going bankrupt. It would do this by writing down of the liabilities, a phrase some have interpreted as a bail in. The draft bill empowers Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability.
IMPORTANCE OF FINANCIAL RESOLUTION and DEPOSIT INSURANCE BILL-2017:
The Bill proposes to create a separate financial resolution corporation to ensure speedy and efficient resolution of issues related to financial firms in distress. The bill repeals the Deposit Insurance and Credit Guarantee Corporation Act, 1961, and subsumes its functions into the corporation.
Paths crossed by FRDI Bill:
- The government’s massive Rs 2.11 lakh crore plan to infuse capital into public sector banks was to strengthen them and there was no question of any bank failing. If any such situation arises, the government will fully protect the deposits made by customers.
- The first introduced in the Lok Sabha in August this year and currently undergoing scrutiny by a joint parliamentary committee. The so-called bail-in clause in the draft legislation has been commented upon by experts as being potentially harmful to deposits held in savings accounts.
- This is the second time the Finance Minister clarified the doubts over FRDI Bill. Last week, the Finance Ministry issued a statement saying that the provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide additional protections to the depositors in a more transparent manner.
- The decision will be taken in the upcoming winter section.