FM: Govt open to hiking deposit insurance cap

The finance ministry also in a statement clarified “certain misgivings” about the FRDI Bill, saying the proposed legislation would not modify “adversely at all” the present protections available to depositors. Replying to queries on the impact of the Financial Resolution and Deposit Insurance (FRDI) Bill on depositors, he said the bill is pending before the joint committee of both Houses and the Centre is awaiting the recommendations. 

“As far as public-sector banks in India are concerned, there always has been, and will remain, an implicit guarantee of the government as far as supporting depositors in those banks are concerned. “As far as security to the depositors is concerned, the government intends, after this bill, to have a security measure... much better than what arrangement existed prior to this bill,” he told the Rajya Sabha. 

Rajya Sabha Chairman M Venkaiah Naidu said, “There has been misunderstanding, disinformation and misinformation. It is good that the minister has clarified.” On the government guarantee on deposits, Jaitley said, “At the moment, security was up to level of 1 lakh rupees. The provisions of this bill give a flexibility and the intention of the Centre also is, for which we are awaiting the recommendations of the Standing Committee, that this amount should be raised. I am open to considering the suggestions in this regard.” The finance ministry statement said FRDI provides only “additional protections” to the depositors in a more transparent manner.

“Certain misgivings have been expressed in the media, especially social media, regarding the depositor protection in the context of ‘bail-in’ provisions of the FRDI Bill. These misgivings are entirely misplaced,” the ministry said. As per the ministry, ‘bail-in’ is only one of many resolution tools in the FRDI Bill. “Bail-in provision may not be required to be used in case of any specific resolution. Certainly, it will not be used in case of a public-sector bank as such a contingency is not likely to arise,” the ministry said. 

“The similar protection would continue under the FRDI Bill and the Resolution Corporation is empowered to increase the deposit insurance amount,” it said. On a question in the Rajya Sabha if the Reserve Bank’s mandate will shift from supervision, regulation to ensuring financial stability in country after passage of the bill, the finance minister said the RBI has several mandates and certainly there is a mandate “that financial stability in the country has to be maintained.”