The ongoing debate about a provision in a new legislation, which may allow the use of depositor’s money to bail out banks on the verge of bankruptcy, has left people panicking.
The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 is set to be taken up for discussion during the ongoing winter session of Parliament. The Bill, first introduced in August, has been under the scrutiny of Standing Committees.
An online petition, demanding the exclusion of “bail-in” provision of the Bill, has attracted over 1,30,000 signatures.
The petition, titled ‘Do not use innocent depositors’ money to bail in mismanaged banks #NoBailIn’, was started two weeks back, and aimed to gather 1,50,000 signatures.
“This bill gives power to a government entity to use depositors’ money to save a bank on the verge of bankruptcy,” says Shilpa Shree, the person behind the petition.
According to PRS India, the proposed law will establish a Resolution Corporation to monitor and regulate banks and other non-banking financial firms. The regulator will also these financial institutions according to their risk of failure.
The Bill is also set to provide depositors insurance up to a limit in case of a failure. The law also authorizes a financial firm to be taken over in case the firm is in “critical condition”.
The petition is addressed to Finance Minister Arun Jaitley along with five members of the Joint Committee of the Bill.
According to existing laws, only bank deposits up to Rs 1 lakh are insured under the Deposit Insurance and Credit Guarantee Corporation Act.
In her petition, Shilpa has indicated, “It means that say you have 10 lakhs in your account and if the bank has trouble, it can reduce your 10 lakhs to 1 lakh.”
“We all know that bad loans are a result of wilful defaulters and many large companies. Why should an innocent depositor be punished for no mistake of his? With the downturn in economy, the bad loans are rising which means our deposits are at bigger risk of being taken away from us,” she added.
However, Arun Jaitley has assured that the Bill won’t hurt depositor's interests.
“The FRDI Bill will strengthen the 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,” he tweeted.
The FRDI Bill does not propose in any way to limit the scope of powers for the Government to extend financing and resolution support to banks, including public sector banks. Government’s implicit guarantee for public sector banks remains unaffected.
— Ministry of Finance (@FinMinIndia) December 7, 2017
However, it is not only these petitioners that are against the Bill.
West Bengal Chief Minister Mamata Banerjee also called for the Bill to be withdrawn.
In her letter to Arun Jaitley, she has written that the Bill will make the common man lose faith in the country’s banking system.
"I will like to sincerely appeal to the Centre to desist from enacting this Draconian law and withdraw the bill to ensure that the common people in the country are saved from financial ruin," she wrote.
Calling it ‘shocking’ and ‘unacceptable’, she added,“To cover up the failures and allow one section of the vested interests to go unpunished, the Centre wants the common depositors to forgo their life-savings.
Even Bank employee unions had asked the Finance Minister to withdraw the bill in September soon after it was tabled in the Monsoon session.
“The objective of this Bill is obviously to heavily empower the new authority with sweeping powers to dismantle and erase public sector financial institutions like banks and insurance companies and hence, it is apparently draconian. We demand the withdrawal of this Bill,” United Forum of Bank Unions, an umbrella organisation of all banks unions had said in September.