The union cabinet, chaired by Prime Minister Narendra Modi, has recently approved the proposal to introduce the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 in the upcoming monsoon session of the Parliament.
The proposed bill, whose approval was given by the cabinet on June 14, 2017, will pave the way for setting up of Financial Resolution Corporation to deal with the bankruptcy of the Banks, Insurance Companies, and Financial Entities, according to the statement issued by the government.
This move has been severely criticised by the Bank Employees Federation of India (BEFI), a bank trade union representing over 1,25,000 employees of commercial banks, Reserve Bank of India, NABARD, regional rural banks and co-operative banks. Urging the Government to withdraw its proposal, C P Krishnan, Joint Secretary, BEFI, said, “Because of this step the Public Sector Banks (PSBs) including State Bank of India, Insurance Companies including Life Insurance Corporation of India, Regional Rural Banks and Co-operative Banks face the threat of closure.”
Krishnan further reiterated that these public sector financial institutions had been created to serve the ordinary masses besides marginalised and underprivileged sections of the people. Out of the total Non-Performing Assets (NPAs), 88.4% is the creation of the large borrowers with the loan exposure of Rs.5 crores and above. On top of it, 12 large borrowers constitute 25% of the NPAs.
“Recently, RBI told banks to set aside at least 50% of the loan amount as likely losses for all cases referred to the insolvency process; the regulator also said that provisioning should be 100% for those cases that don’t get resolved in the initial mandatory period for loan restructuring and instead are forced into liquidation,” said, T. Thamilaras, a senior member of BEFI.
“Moreover, if Banks have to make 50% or 100% provision, then what is the use of this law? The move of the Government lacks any logic. This is yet another deliberate attempt to serve the Corporates by encouraging more and more private banks in the name of small banks or payment banks and keeping our country’s door wide open for Foreign Banks,” added Thamilaras.
BEFI has called upon all the Trade Unions and democratic forces to resist this move of the Government to close down Public Sector Financial Institutions and defeat the same.