Controversial FRDI Bill with ‘bail in’ clause for banks deferred

The controversial Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 has been deferred.

The draft law, which was introduced in the Lok Sabha in August, is undergoing scrutiny by a joint parliamentary committee, which will now give its report on the last day of the Budget Session.

The committee had sought an extension of the deadline, which was granted by Lok Sabha Speaker Sumitra Mahajan on Monday.

The bill, similar to the Insolvency and Bankruptcy Code, 2016, is focused on companies in the financial sector. It seeks to provide a resolution framework to deal with bankruptcies in banks, insurance companies and other companies in the financial services sector.

The FRDI Bill was introduced in Parliament on the last day of the previous session. This Bill is now before the Joint Committee of Parliament.

It envisages a 'Resolution Corporation' and a 'Corporation Insurance Fund' for deposit insurance, replacing the DICGC, set up in the early 1960s after two banks collapsed.

But there was widespread alarm among the public after it came to light that the bill envisaged a 'bail-in' clause which would allow troubled banks to use depositors' money to shore up their balance sheets.

The apprehension was that deposits in banks would not be returned because of the ''bail-in'' clause in the bill (See: Jaitley seeks to soothe depositors amid protests over FRDI Bill).

Some bank unions had cautioned the Centre against proceeding further with the enactment of the bill, and had even threatened a strike over the issue (See: Bank union threatens strike if FRDI Bill is not revamped).