Financial Resolution and Deposit Insurance Bill
Also called: FRDI Bill · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 tried to set up one legal system for handling failing financial firms such as banks and insurers. "Resolution" means a regulator steps in to save, merge, sell or close a failing firm in an orderly way, so it does not collapse in a disorderly way. The Bill also planned to bring deposit insurance under the same framework. Deposit insurance protects depositors' money up to a set limit if a bank fails. It was withdrawn in 2018. People panicked over its bail-in clause, which meant a failing bank's own creditors, and possibly its depositors, would bear part of its losses. India still has no full resolution law for financial firms.
Example
At the time, DICGC insured deposits only up to Rs 1 lakh per depositor per bank, a limit in place since 1993. Suppose a saver had Rs 10 lakh in a bank. They feared that, under bail-in, the uninsured Rs 9 lakh could be cut or turned into bank shares. This had already happened to large depositors in Cyprus in 2013. This fear led to the Bill being dropped.
Don't confuse with
- Insolvency and Bankruptcy Code (IBC) 2016: it resolves stressed non-financial companies through NCLT. The FRDI Bill was meant for financial firms, whose failure can trigger bank runs.
- Bail-out: outside money, usually taxpayers' or state-directed, rescues the bank. An example is the SBI-led rescue of Yes Bank in March 2020. In a bail-in, the bank's own creditors take the loss.