January 19, 2020

BEFI Deplores Govt’s Move to Bring in FSDR Bill

Below we publish the press statement issued by the Bank Employees Federation of India, on January 15, on the mooted Financial Sector Development and Regulation (Resolution) Bill (FSDR) 2019 by the government of India.

IT has been reported in the news media that Narendra Modi-led BJP government is going to reintroduce the Financial Resolution and Deposit Insurance (FRDI) Bill 2017, in the garb of Financial Sector Development and Regulation (Resolution) Bill (FSDR) 2019. A briefing note prepared by economic affairs secretary, Atanu Chakraborty provides the contours of the new bill. As per reports, the revised Financial Sector Development and Regulation (Resolution) Bill, 2019 (FSDR) is ready to be re-introduced in parliament as soon as it is cleared by the cabinet.

The new bill is similar to the earlier Financial Resolution and Deposit Insurance (FRDI) Bill which was introduced in the Lok Sabha on August 10, 2017 but withdrawn exactly a year later after it had triggered panic among depositors over the controversial ‘bail-in’ provision which held out the threat of forcibly converting term deposits with banks into equity to recapitalise failed banks. BEFI along with other bank unions including the UFBU and various trade unions as well as the Left parties launched rigorous campaign against the draconian bill. With the bad loans of banks mounting above Rs10 lakh crore, above 85 per cent of it due from large private corporate houses, and massive write offs of nakedly pillaging proportions resorted through the IBC Code resolution mechanism, the panic was quite obvious. In the face of mass protest including strike action, the government was compelled to repeal the FRDI Bill 2017. Though the new bill will not have a ‘bail-in’ clause, the same provisions are shrouded in the authority with FSDR 2019 that can modify liabilities which mean they can set a limit to the liabilities that would be paid out.

The bill is set up for resolution and not for restoration and recovery. The tools of resolution include the use of one or more of the following:
i) transferring the whole or part of the assets and liabilities to another entity;
ii) creating a bridge service provider;
iii) cancellation/modification of liabilities;
iv)  merger or amalgamation;
v) acquisition;
vi)  liquidation;
vii) run-off, in case of an insurance company, if deemed appropriate.

The new bill expects to provide certain ‘critical powers’ for resolving banks, such as ‘power to terminate contracts’; ‘write down debts’. The resolution authority will have a representation of all financial sector regulators – Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance and Regulatory Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), the central government and will have three whole-time members and two independent members.

It will also run a deposit insurance guarantee in the name of Resolution Authority Insurance Fund replacing DICGC for which it will set limits. The limit may periodically increase or decrease based on its assessment. The financial sector resolution framework covers a wide spectrum of financial entities and it will also cover cooperative banks and regional rural banks.

The FSDR has removed the controversial ‘bail-in’ provision without eliminating the depositors ‘worries attached to it.

For the FSDR Bill to become operational, it envisages amendments to several statutes including the Multi-State Cooperative Societies Act, Banking Companies (Acquisition and Transfer of Undertaking) Act, Regional Rural Banks Act, Life Insurance Corporation Act, PFRDA and State Bank of India Act, among others.

The Bank Employees Federation of India deplores the intention of the central government to grab the bank deposits that are largely held by household depositors to pay off the unscrupulous private corporate houses through the Insolvency and Bankruptcy Code mechanism set up by the government. It calls upon the people to rise in unison against the dangerous bill which the diabolical government is trying to bring surreptitiously in the prevailing uproar over the NPR, CAA and NRC.