The National Democratic Alliance (NDA) government has decided to withdraw the contentious Financial Resolution and Deposit Insurance Bill 2017, or FRDI Bill, and is awaiting the cabinet’s nod to move Parliament for this as the government looks to avoid controversial legislation ahead of the 2019 general election.

A decision has been taken internally to withdraw the bill, but the Cabinet needs to clear the proposal, said a finance ministry official on condition of anonymity.

A cabinet meeting on Wednesday chaired by Prime Minister Narendra Modi did not take up the proposal.

The bill has been criticized for some of its controversial provisions, including a “bail-in” clause, which suggests that depositor money could be used by failing financial institutions to stay afloat.

The lack of clarity over protecting existing levels of deposit insurance for smaller deposits also led to a lot of criticism. At present, deposit insurance is available for all deposits of up to ₹1 lakh but there was no clarity on whether it will be continued in the bill.

The decision to withdraw the bill comes as a surprise because the government has been vociferously defending the provisions of the bill by pointing out that the bail-in clause will not adversely impact depositors. The government had maintained that the implicit sovereign guarantee for state-run banks remains unaffected. Modi had also sought to assure people that the bill was consumer friendly and will protect the public’s deposits.

The FRDI Bill 2017 was tabled in the Lok Sabha in August, following which it was referred to the joint parliamentary committee. The panel is due to submit its report on the last day of the ongoing monsoon session.

The bill aims to limit the fallout of the failure of institutions such as banks, insurance companies, non-banking financial companies, pension funds and stock exchanges.

However, some of its provisions have been termed anti-people and anti-poor by the opposition parties who have pointed out that people’s money will be used to bail out banks that make bad lending decisions through a corresponding reduction in the claims of depositors. #casansaar (Source - LiveMint)