A public statement, released jointly by Soumya Dutta of the All-India Bank Officers’ Confederation, Priya Dharshini of the Centre for Financial Accountability, Madhuresh Kumar of the National Alliance of People’ Movements, and Gautam Mody of the New Trade Union Initiative, has argued that, while the Government of India has withdrawn the controversial Financial Resolution and Deposit Insurance (FRDI) Bill, only a batter has been but won the “war looms at large”.
Text of the statement:
On August 7, 2018, a year after its introduction, the BJP government withdrew the Financial Resolution and Deposit Insurance (FRDI) Bill. Aimed at destroying public sector banks and endangering the public interest, FRDI was introduced last year on August 10.
Its withdrawal was achieved after strong opposition from trade unions, especially those of the financial sector, people’s movements, civil society organisations and sections of the middle class. This is a major defeat for the BJP government comparable to the reversal of the Land Acquisition Bill in 2014.
In the last four years, the BJP government has rammed through many anti-people policies and laws while undermining its democratic processes. The FRDI Bill too was sought to be passed in similar fashion, but the collective effort of the progressive organisations and sections of the middle class forced the BJP to retreat.
The BJP government justified the withdrawal citing the ‘apprehensions’ of stakeholders, including the public about various clauses of the Bill like bail-in and inadequacy of deposit insurance. Further, it argued that comprehensive reconsideration of these issues would require time.
This only highlights the BJP’s arrogance and lack of concern when dealing with legislation that could potentially impair the entire financial system of the country. The FRDI bill was introduced without any public debate. Ignoring parliamentary opposition’s demands for the referral to a Parliamentary Standing Committee, the Bill was instead sent to a Joint Committee.
While drafting the Bill, the BJP government borrowed extensively from a report of the Financial Stability Board, an international body consisting of G20 countries called the “Key Attributes of Effective Resolution Regimes for Financial Institutions”. This report was prepared after the fallout of the 2008 financial crisis and proposed measures to avert another such crisis.
Tailored for a banking sector dominated by private parties where banks and other financial institutions engaged in rampant speculative activities, the report had little concerning a banking sector like India’s where publicly owned entities catered primarily to small depositors, pensioners and working-class savings.
Refusing to recognize these fundamental differences, the BJP government tried imposing FRDI without analysing the potential impact it would have on the economy and the savings of people. This Bill if enacted would have completely undermined the RBI and other regulatory bodies, concentrating executive power in a Resolution Corporation (RC).
The RC would have powers to sell, merge and liquidate Financial Institutions including PSBs. And the Bail-in clause would have deprived people of their hard-earned deposits to pay for banks losses stemming from corporate defaults.
Finance Minister Piyush Goyal said that withdrawal does not mean the end of the bill and that the BJP would bring it back in a new form. He insisted that the Bill is an inevitable necessity to resolve the banking crisis. But at the core of this crisis lies a mountain of corporate debt and capital-strapped banks.
These issues persist even today, fuelled and fanned by the BJP government’s botched attempts at banking reform and ideological refusal to recapitalize PSBs. Unless the PSBs are recapitalized, debt recovery mechanisms strengthened, lending practices improved and wilful defaulters penalized, there cannot be a long-term solution for the crisis of bad loans.
Any attempt to ‘reform’ banks without recapitalization and curbing the lax banking practices that led to the crisis is only an effort to weaken the public sector banks and is tantamount to privatisation. Hence, we must be vigilant against any renewed attempt to impose this Bill and its clauses in any shape or form by the BJP or any other government. As mentioned before, this significant defeat is due to a concerted effort by a large number of people and organisations, coming from diverse sections and strata of the society.
From sending numerous submissions to the Joint Committee, helping to organise public meetings on the dangers of FRDI Bill in various regions across the country, sending online letters to MPs requesting them to take a position against the FRDI Bill and contributing to bringing out a critique of FRDI “Wrong Diagnosis, Harmful Prescription: A Critique of Financial Resolution and Deposit Insurance (FRDI) Bill, 2017”, the coordinated, timely and consistent effort played a big role in defeating the FRDI Bill.
We also acknowledge the efforts taken by the banking unions in calling nationwide strikes, meeting the finance minister, members of the standing committee on finance, leaders of the opposition, meeting MPs, making presentations to the joint committee, and galvanising support of parliamentarians.
This also resulted in the opposition parties, including from the left, questioning the Bill and its clauses. What must also be reiterated is that the FRDI Bill is only one in the long list of the BJP government’s attempts to destroy and privatise public sector banks.
Pushing back FRDI is only a small step towards strengthening public sector banks. More organisations and people must engage with finance and financial institutions as it is only with constant monitoring of the changing financial situation and policies and through public actions that the proper functioning of Indian banking and the PSBs can be ensured and privatisation resisted. Transparency and accountability are absolutely necessary in banking, it is public money after all.
The article, first published on the Counterview, can be accessed here.