The Union Finance Ministry on Thursday moved quickly to address concerns of depositors over a provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill that appeared to allow the use of depositors’ funds to bail out banks.
Allaying concerns, the government on Thursday said the FRDI Bill is transparent and is designed to protect the rights of depositors, and not the other way around.
The bill, which seeks to deal with the insolvency of financial service providers, had been tabled in August in the Lok Sabha and has currently been referred to a Joint Committee of Parliament, a Finance Ministry statement said here.
Meanwhile, Finance Minister Arun Jaitley, in a tweet, said: "The Financial Resolution and Deposit Insurance Bill, 2017 is pending before the Standing Committee. The objective of the government is to fully protect the interest of the financial institutions and depositors."
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The bill provides for the setting up of a resolution corporation with powers relating to transfer of assets to a healthy financial firm, merger or amalgamation, liquidation to be initiated by an order of the National Company Law Tribunal.
According to the statement of objects and reasons of the bill, the resolution corporation can also designate certain financial providers as systematically important financial institutions, the failure of which may disrupt the entire financial system.
The government said the FRDI Bill provides additional levels of protection for depositors as compared to other legislations.
"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 rather additional protections to the depositors in a more transparent manner," the statement said.
"The FRDI Bill is far more depositor friendly than many other jurisdictions, which provide for statutory bail-in, where consent of creditors or depositors is not required for bail-in," it added.
(With IANS inputs)