Reference Text
Time Left10:00
The
government
has
done
well
to
decide
to
drop
the
Financial
Resolution
and
Deposit
Insurance
(FRDI)
Bill
in
the
face
of
criticism
regarding
some
of
the
provisions
in
the
proposed
law
which
had
stoked
fears
among
deposit
holders,
leading
to
anxiety
and
panic
withdrawal
of
deposits.
That
the
government
chose
not
to
pursue
it
even
before
the
joint
committee
of
Parliament
has
taken
a
view
is
a
recognition
that
going
ahead
with
the
legislation
would
have
had
an
impact
on
financial
stability
in
an
economy
where
deposits
still
account
for
a
large
chunk
of
financial
savings.
Clause
52
in
the
bill
on
'bail
in',
which
said
that
in
the
event
of
a
failure
or
insolvency
in
a
bank,
depositors
would
also
have
to
bear
part
of
the
burden
of
resolution,
had
sparked
off
protests
including
by
political
parties,
forcing
Prime
Minister
Narendra
Modi
and
Finance
Minister
Arun
Jaitley
to
publicly
allay
such
fears
a
few
months
ago.
The
issue
then,
still
valid
now,
is
whether
the
G
20
Stability
Forum's
recommendations
that
various
jurisdictions
should
have
legal
provisions
for
resolution
of
financial
firms
should
be
implemented
in
India.
The
compelling
reason
for
that
policy
approach
in
many
countries
which
form
part
of
this
rich
country
grouping
was
the
huge
bail
out
of
many
banks
in
the
West
using
public
funds.
But
the
Indian
experience
has
been
different.
Over
the
last
few
decades,
the
government,
the
dominant
shareholder
in
a
large
number
of
banks,
or
the
banking
regulator,
the
RBI,
did
not
have
to
step
in
much
even
though
there
have
been
bank
failures.
Some
countries
have
excluded
deposits
from
the
purview
of
bail
in
provisions,
making
it
easier
to
build
a
case
for
jettisoning
this
clause.
What
may
have
also
weighed
on
the
government
is
the
suggestion
of
the
the
Financial
Stability
and
Development
Council,
which
has
representation
of
the
government
and
financial
sector
regulators,
to
exclude
this
clause
when
it
comes
to
bank
deposits.
What
also
matters
is
timing.
A
dozen
state
owned
banks
are
now
under
what
is
known
as
the
Prompt
Corrective
Action
framework
of
the
RBI
which
imposes
severe
restrictions
on
their
operational
business
after
having
piled
up
a
mountain
of
bad
loans.
Banking,
after
all,
is
a
highly
leveraged
business
with
a
huge
contagion
risk,
especially
so
in
a
bank
dominated
country
like
India
where
financial
literacy
levels
are
still
fairly
low.
A
far
more
important
task
now
is
to
strengthen
Indian
banks
and
to
address
governance
issues
so
that
they
fulfill,
in
the
words
of
a
former
finance
minister,
their
dharma
of
lending.
The
government
has
done
well
to
decide
to
drop
the
Financial
Resolution
and
Deposit
Insurance
(FRDI)
Bill
in
the
face
of