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FRDI: ‘Depositors will be protected’

FRDI: ‘Depositors will be protected’

Finance Minister Arun Jaitley has categorically asserted that depositors would be “fully protected” in the event of a bank failure, the third clarification the government has made on the issue in less than a week as it seeks to allay mounting concerns about a proposed ‘bail-in’ clause in a draft legislation on financial resolution.

“The Union Minister for Finance and Corporate Affairs Arun Jaitley said that the Financial Resolution and Deposit Insurance Bill 2017 is before the Joint Committee of Parliament,” the Finance Ministry said in a statement on Monday. “Whatever are the recommendations of the Committee, the Government will consider them. But rumours are being spread about the Bill.”

In the backdrop of criticism in the media and on social media about the ‘bail-in’ clause, which allows for the cancellation or modification of bank deposits to shore up bank finances, the Ministry of Finance had on December 7 issued a statement saying that the provisions of the FRDI Bill do not hurt depositors’ interests.

Committed to PSU banks

“Mr. Jaitley said that the Government has already clarified and said it is committed to strengthen the PSU banks and the financial institutions,” the ministry added in its statement on Monday. “Removing any misgivings and rebutting false rumours being spread about the provisions of the FRDI Bill 2017, the Finance Minister said that about ₹2.11 lakh crore is being pumped in to strengthen the public sector banks. So no such question arises (regarding the failure of banks).”

“If such a situation arises, deposits made by the customers, the Government will fully protect them. The Government is very clear about it,” Mr. Jaitley was cited as saying in the statement.

The government could consider removing the controversial clause from the legislation if it was committed to protecting bank deposits in all eventualities, suggested a former banker.

“If this is the intent of the government, to protect the deposits fully, then what is the need for the bail-in clause, they should just scrap it,” Sanjay Bhattacharya, former managing director at the State Bank of India said.

“If the clause is included in the Bill, then one of the impacts will be on the price of gold, which will shoot up,” Mr. Bhattacharya added.

“The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all,” the ministry added in the statement. “They rather provide additional protections to the depositors in a more transparent manner.”

Earlier, Mr. Jaitley had himself tweeted that the “objective of the Government is to fully protect the interest of the financial institutions and the depositors.”

Source: The Hindu

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