The Financial Resolution and Deposit Insurance (FRDI) Bill has been withdrawn from the Lok Sabha and this has come as a delight to account holders and depositors in bank. Here's provided the reason for it in detail:
First a brief on FRDI Bill
Financial Resolution and Deposit Insurance Bill 2017 similar to the Insolvency and Bankruptcy Code, 2016 resolves around creating a comprehensive framework for faster and cost-effective resolution of distressed financial entities. The bill was introduced in the Lok Sabha in August last year and deals with all the issues that can come forth in case financial institutions including bank, insurance companies, NBFCs and exchanges go bankrupt.
'Bail-in' clause in the FRDI caused worry among bank depositors
Through its bail-in clause, the proposed bill hinted that it should not always be the government that should come up with the bail-out plan for the bank in financial trouble and instead let the shareholders and other stakeholders that include depositors take over the responsibility of saving the company in crisis. This implies, for the resolution or bail-out of the failing financial entity, it was proposed to use depositor's money or deposits with the bank which was perceived to be against depositor's interest.
But with the withdrawal of the FRDI Bill, the bail-in clause of using depositors' funds to rescue the financial institution from crisis will no longer apply.
Deposit Insurance under DICGC will continue for bank customers
After the withdrawal of the FRDI bill, status quo will remain that is all bank deposit types such as savings, current, recurring, fixed etc. will be insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC). It is to be noted that the premium for the deposit insurance scheme is entirely borne by the insured bank.
Under the DICGC scheme, each bank depositor is insured for a maximum of Rs. 1 lakh for both principal and interest amount held in the same capacity and same right as on the date of liquidation or cancellation of bank's licence or the date on which the scheme of amalgamation or merger comes into force.
Further, in case the depositor in a bank maintains deposits in different branches of the same bank, for the purpose of insurance cover these deposits are totalled and a maximum of Rs. 1 lakh is payable to the depositor. Say for example- If a bank account holder has a principal amount of Rs. 99,000 and an accrued interest of Rs. 4,000, then the depositor will be insured under the DICGC scheme up to a maximum of Rs. 1,00,000.
All of the commercial banks that include local area banks, regional rural banks or RRBs, cooperative banks and branches of foreign banks operating in India for their deposit accounts are insured under the DICGC scheme.