The trial by media have led much harm to public benefits of the country. It has also led to breach in individual freedom and character assassination to life of many people such as in the Aarushi Murder Case. The sensational presentation on television to get more eyeballs and oversimplified headlines, sometimes direct allegation with question mark, has destroyed life of many individuals. The same fate happened to the Financial Resolution and Deposit Insurance Bill (FRDI) which was brought to resolve crisis in financial institutions and as well as to protect the depositor’s interest.
The misrepresentation of facts by media on FRDI bill have led to panic withdrawal of cash by depositors and eroded public trust. Following this, the government was forced to drop the bill from the parliamentary approval. The FRDI bill, introduced in the Lok Sabha on August 11, 2017, is currently with a joint committee of Parliament. The committee was to submit its report by the last day on the monsoon session of Parliament that began on Wednesday. The session will end on August 10th. “Government moves to make insolvency resolution more transparent, efficient and equitable; approves Insolvency and Bankruptcy Code (Amendment) Bill, 2018,” government spokesperson Sitanshu Kar tweeted on Wednesday.
Government moves to make insolvency resolution more transparent, efficient and equitable; approves Insolvency and Bankruptcy Code (Amendment) Bill, 2018#Cabinet
@FinMinIndia @PiyushGoyal @arunjaitley @PonnaarrBJP @BJPShivPShukla
— Sitanshu Kar (@DG_PIB) July 18, 2018
The FRDI bill comes with Insolvency and Bankruptcy Code (IBC) to spell out the procedure for the winding up or revival of an ailing company. The difference between IBC and FRDI is that IBC is for all companies irrespective of sector while the FRDI is specifically for financial institutions like banks and insurance companies. The need for such a regulation was speculated across the world when a lot of high profile financial institution filed for bankruptcy aftermath of 2008 financial crisis. Post crisis many countries brought Deposit Insurance Bills. In India, Modi government encouraged the people to engage with banking sector with schemes like Jan Dhan Yojana and moves of demonetization. So, a deposit insurance bill was required in India and this is the reason behind government’s move to bring FRDI bill.
The FRDI bill mainly contains two components, the resolution of financial entities and deposit insurance for the deposits of the people with financial entities. The bill seeks to provide the deposit insurance of up to 1 lakh which is same as the previous Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance. The DICGC was established on 15 July 1978 under Deposit Insurance and Credit Guarantee Corporation Act, 1961. The new bill seeks to replace the 1961 act and provides for the setting up of a Resolution Corporation which will be tasked with monitoring financial firms, anticipating their risk of failure, taking corrective action and resolving them in case of failure. The Corporation will also be tasked with classifying financial firms on their risk of failure — low, moderate, material, imminent, or critical. It will take over the management of a company once it is deemed critical. So, overall the bill would have made the financial companies more reliable and secure than they were under 1961 act.
The misrepresentation of facts by media was done on the resolution part. The resolution part of the bill has bail-in clause which says that 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. The media presented it like that it is something new if the financial institution goes bankrupt then the depositors will have to reduce the claims. The fact is that the ‘bail-in’ clause is same as per the provisions of the previous 1961 act. But, the lies by media led to many people withdrawing deposits from banks and waning of public trust in the banks. The huge withdrawal by people caused a panic in the government and this is the reason behind government dropping the bill.
If the bill has been passed, it would have made the depositors money safer because there it provided provision for a monitoring agency to look after strength and weaknesses of firms and take actions according to that. But, the misrepresentation of facts by media led to panic in public which resulted in drop of bill by the government. So, as in many other previous cases the vested interests in media caused against public interest.
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