Will FRDI Bill mean a throwback to the tumultuous pre-1960s?

The Finance Ministry sought to allay apprehensions of savers/depositors over the Financial Resolution and Deposit Insurance (FDRI) Bill on three occasions during the past week.

But, apparently, that has not had the desired effect if the continued voicing of fears over the matter is any indication.

The latest among these is whether the Bill, if passed, could precipitate a throwback to the period between 1913 and 1960 when 1,600 private banks closed down operations and depositors lost all their money.

It was then that the All India Bank Employees Association (AIBEA) took up the issue in Parliament, following which the Banking Regulations Act was suitably amended in 1960.

Any failed bank would henceforth be put on moratorium and merged with a peer bank, recalled CH Venkatachalam, veteran trade union leader and General Secretary of AIBEA.

In the last 55-plus years, a number of banks that faced liquidation have been led into merger in this manner. Neither has any bank been liquidated nor has any depositor lost his/her money, he said.

Among the affected banks were Bank of Bihar, Belgaum Bank, Lakshmi Commercial Bank, Miraj State Bank, Hindustan Commercial Bank, Traders Bank, Bank of Tamil Nadu, Bank of Thanjavur, Parur Central Bank, Purbanchal Bank, Bank of Karad, Kashinath Seth Bank, Bariely Bank, Sikkim Bank, Benaras State Bank, Nedungadi Bank, Global Trust Bank, United Western Bank.

“All these banks were protected under the Banking Regulations Act and merged with other banks,” Venkatachalam said. No depositor lost a single rupee because of their failure.

In contrast, the ‘bail-in’ clause in the FRDI could discredit this glorious history of law-making that gave primacy to the interest of depositors.

Banks, he said, need resources and deposits of the people constitute the main resource. The clause could drive away these very depositors, which would in turn make banks unviable.

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