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What is the FRDI Bill? Explain FRDI’s
Bail-in Clause why it is a cause of contention?

The Financial Resolution and Deposit Insurance Bill, 2017,
have given rise to concerns over protection for bank deposits in the proposed
law. The Bill seeks to establish a Resolution Corporation which will exercise
control over banks, insurance companies, regional rural banks (RRBs),
cooperative banks and other financial institutions. Creation of Resolution
Corporation was recommended by the Financial Sector Legislative Reforms Commission
(FSLRC) headed by Justice B N Srikrishna.

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The FRDI Bill also mentions the closure of the “Deposit
Insurance and Credit Guarantee Corporation” (DICGC) established in 1961, which
has been an insurance cover for the savings of depositors.

 “Bail-in” provision

The bail-in clause is the resolution tools under FRDI Bill, in
case of the failure of a bank, wherein the depositors will have to bear a part
of the cost of the resolution by a corresponding reduction in their claims. G20
at its Cannes Summit in 2011 endorsed some of the key attributes of such resolution,
which include transfer or sale of assets and liabilities, and legal rights and obligations
including deposits liabilities and ownership in shares, to a third party
without any requirement for consent. In other words, deposit holders would not
have any superior claims.

Main aim of Bail in Clause, is to minimise the cost of any
failures of financial firms to taxpayers. It is in accordance with EU’s Bank
Recovery and Resolution Directive, 2014, which mentions that
shareholders of banks and creditors must also pay their share of costs,
rather than governments or taxpayers absorbing all losses.

Criticism of The Bill

The Resolution Corporation has been given powers that
override those vested in the RBI, the Central Vigilance Commission (CVC), Central
Bureau of Investigation (CBI). Along with it, the measures taken by the
corporation cannot be challenged in court, including the Supreme Court.

All India Bank Officers’ Confederation (AIBOC), is leading
the protests against this Bill, the FRDI Bill vests tremendous powers in the Resolution
corporation & it seeks to undermine the spirit of bank nationalisation.

Government’s response over the issue

Government has stated that FRDI Bill is more depositor-friendly
and it does not propose in any way to limit the scope of powers to extend
financing and resolution support to banks, including public sector banks. FRDI
bill seeks to enhance the security of the financial system.

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