Financial Resolution and Deposit Insurance (FRDI) Bill

Financial Resolution and Deposit Insurance (FRDI) Bill

Part of: Prelims and GS-III -Economy

Context: In order to deal with insolvency of firms in the financial sector, the Finance Ministry has recently sought views of the Reserve Bank of India (RBI) on drafting a modified version of the Financial Resolution and Deposit Insurance (FRDI) Bill which was withdrawn in 2018.

About the FRDI Bill

• The Parliament had passed FRDI Bill in 2017, however, it was withdrawn in 2018. 
• The bill was meant to address the issue of insolvency of firms in the financial sector with the least disruption to the system and other stakeholders.
• The Bill was withdrawn due to concerns among the public over safety of deposits despite assurances by the Central government. 
• A key point of criticism was the so-called bail-in clause in the Bill that said in case of insolvency in a bank, the depositors will have to bear a part of the cost of the resolution by a corresponding reduction in their claims. 
• Now under a modified version, in order to allay fears of depositors the deposit insurance cover has also been raised to Rs 5 lakh from Rs 1 lakh per account.

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