Why it is in news?

• Government in its another clarification about the Financial Regulatory and Deposit Insurance (FRDI) Bill 2017 said the preferential treatment would be given to depositors and the bail-in clause would not be applied to public sector banks.

  The FRDI Bill :

The FRDI bill, 2017 was tabled in the Lok Sabha in August this year following which it was referred for review to a joint parliamentary committee. 

• The FRDI Bill aims to limit the fallout of the failure of institutions like banks, insurance companies, non-banking financial companies, pension funds and stock exchanges.
• The Bill seeks closure of the DICGC, ( a subsidiary of RBI which insures all kinds of deposits upto Rs. 1 lakh ) as the credit guarantee will be taken care of by the Resolution Corporation itself.
• It was mandatory for the banks to pay a sum to the DICGC as the insurance premium. But now the Bill proposes the banks to pay a sum to the Resolution Corporation but doesn’t specify the insured amount.
• It is also unclear how much a depositor would be paid in case of liquidati

What is Government’s stand ?

• The finance ministry earlier in its  statement said - “The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide additional protections to the depositors in a more transparent manner,”.
• And now in its another clarification about the Financial Regulatory and Deposit Insurance (FRDI) Bill, the government has said depositors will be given preferential treatment in the event of liquidation of a bank, and the controversial bail-in clause will be used only with the prior consent of depositors
• The clarification also said the bail-in clause would not be applied to public sector banks, and it would be a tool of last resort — when a merger or acquisition is not viable — in the case of private sector banks.

What is the issue then ?

• The Bill has been facing criticism for some of its provisions, including a “bail-in” clause that reportedly suggests that depositor money could be used by failing financial institutions to stay afloat.
• The fact that no specific deposit insurance amount is prescribed has also been opposed by many stakeholders.
• At present, all deposits up to Rs1 lakh are protected under the Deposit Insurance and Credit Guarantee Corporation Act that is sought to be repealed by this bill.
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