Concerned citizens are drawing the attention of the members of the Parliament towards serious implications of the Financial Resolution and Deposit Insurance (FRDI) Bill 2017 on the individual depositors and the banking sector at large.
So far, individuals from across India have signed the petition available on the website http://www.repealfrdi.net/ and sent it to their elected representatives as the Bill, which was introduced in the Lok Sabha on the penultimate day of the last session without any discussion, is under consideration of a Joint Parliamentary Committee. The Committee is mandated to submit its report during the ongoing parliament session. The petition is also endorsed by over 50 civil society organisations.
The concerned citizens, including academic Meera Nangia, activist Medha Patkar among others, drew attention on the following provisions in the proposed Bill:
Establishment of a Resolution Corporation (RC) with sweeping powers to order amalgamation, merger, liquidation and acquisition of any financial institution, if, in RC’s opinion, the concerned institution’s risk to viability is imminent or at critical levels. The ambit of RC would include nationalised and private banks, regional rural banks, co-operative banks, payment banks, insurance companies — including nationalised general insurance companies, and non- banking financial institutions.
The RC will have the final say in any disagreement with any of the regulators of financial institutions (RBI, IRDA, SEBI etc.). Such authoritarian powers to one body, on institutions like public banks and government-owned insurance companies, which were built with the taxpayers’ money over the several decades would be suicidal for our economy.
The RC will replace the Deposit Insurance and Credit Guarantee Corporation (DICGC) as the principal agency to provide deposit insurance. As of today, each depositor in a bank is insured up to a maximum of 1,00,000 by DICGC. This will be withdrawn through the FRDI Bill. The Bill has left the role of fixing deposit insurance to the Resolution Corporation.
Majority of the members of the Board of the RC are appointed by the central government thus making the discretionary power of the Corporation violate the autonomy of other regulators like RBI, IRDA, SEBI.
According to the Section 48(1) (c), the RC can choose to resolve any financial service provider, which is facing critical risk to viability, through ‘Bail-in’. The Bail-in refers to a situation wherein, the depositor’s money, beyond the insured amount, can be converted into equity and the depositors can be made shareholders with/ without their consent. This means that working class depositors will have to sacrifice their hard-earned savings to rescue the politically manipulated banks, which gave loans to the inept borrowers.
The Bill also suggests ‘mergers’ as one of the tools to resolve financial institutions. Bank mergers have not helped in resolving the crisis of bad loans, but have only increased logistical and administrative chaos. Given that even today a large section of the population is outside banking sector, we need more bank branches not reduce the existing ones.
Section 65(1) states “Notwithstanding anything in any other law for the time being in force, no proceeding for the liquidation of a specified service provider shall be entertained by any court or tribunal other than the Tribunal, in accordance with the provisions of this Act.” Section 133 also prohibits constitutional remedies by preventing courts and Tribunals from entering any proceedings for the liquidation of service providers.
Similarly, the employees terminated due to the resolution of the companies under this Act, cannot avail judicial relief. Proposing such a provision in the Bill will put up restrictions on the judiciary and abridge peoples’ rights, which makes this provision unconstitutional.
The Corporation, according to this Bill, can act with impunity and the only appellate authority — the National Company Law Tribunal (NCLT) —, which can look into certain cases, is highly understaffed with only 11 benches, 16 judicial members and seven technicians.
The concerned citizens warned that the Bill is coming in the wake of the unprecedented crisis of unpaid loans by corporates, which have become Non-Performing Assets (NPAs). The crisis is a culmination of changing lending policies to encourage large-scale lending and failure of the companies (including some which are willful defaulters). They reiterated that the crisis is a policy failure of the government and Reserve Bank as the primary regulators. Through this Bill, the government is asking the common people to pay the prize for the failure of big corporates. This Bill will affect public sector banks, especially smaller banks and co-operative banks that are already in bad shape.
The petition can be signed at http://www.repealfrdi.net