In a letter to Union Finance Minister Arun Jaitley on Saturday, Chief Minister Mamata Banerjee urged the Centre to desist from making the “draconian” Financial Resolution and Deposit Insurance (FRDI) Bill into an act “to ensure that common people are saved from financial ruin’’. The Bill is to be tabled in the ongoing Winter Session of the Parliament.
The Bill proposes to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services and stock exchanges in case of insolvency. Industry body Assocham has said that experts felt the “bail-in” clause in the Bill can potentially harm deposits in savings accounts. The resolution corporation, proposed in the Bill, would prevent banks from going bankrupt. It would do this by “writing down of the liabilities”, a phrase some have interpreted as a “bail-in”. The Bill also empowers the resolution corporation to cancel the liability of a failing bank or convert the nature of the liability.
On Friday, Trinamool Congress, in its core-committee meeting, had termed the Bill as “black” and “draconian” in nature. In her letter, Mamata said she was “shocked” to find that the Centre is planning to introduce a Bill in Winter Session, which is an “assault on the financial security of the poor and the middle class”.
“This Bill completely shatters the age old faith and trust that is reposed by the people in the banking system. It appears to me that this Bill will forcibly take away the hard-earned life savings of the common people, entrusted to banks, for bailing out one section of vested interests, who have siphoned off loans given to them by the banking system. This is tantamount to cheating the depositor (the common men and women) for no fault of theirs. This, in my view, is grossly unfair and totally unethical,” she wrote.
Maintaining that the common people are “deeply anguished” by the Bill and what it could do to ruin their lives “through the activities of the proposed financial resolution corporation” (FRC), Mamata listed a “number of issues” with the Bill.
“It forcibly converts the deposits of common people into equity shares of the bank (even this equity share will be worthless because the bank is already in debt being overburdened with non-performing assets). It could charge the nature of deposits from one class to another, thereby changing the interest rate of the tenure of the deposit.
It could impose a stay on depositors right to withdraw deposits before maturity. It could put a moratorium on payment of interest/payment of deposit on maturity. The FRC is understood to be provided with sweeping powers over not only banks like the State Bank of India and other nationalised banks but also over regional and rural banks, cooperative banks, payment banks, insurance companies, including Life Insurance Corporation of India,” she said.
“There is a deep apprehension among farmers, for whom cooperative banks are the mainstay for agricultural borrowing in far-flung areas,” Mamata added. The CM went on to say that it is evident that the “banking system has failed in managing the banking sector on sound financial principles and highest norms of transparency and probity”. “Now, to cover up failure and allow one section of vested interests to go unpunished, the government wants common depositors to forego life savings. This is shocking and unacceptable,” Mamata wrote.