Banks should actively manage their resources instead of taking recluse of a demonized proposed Act of FRDI which will violate depositors rights

All India Association of Industries(AIAI) is a premier Chamber of Commerce , an apex body  representing the trade, industry and employment since 1956 . AIAI is a think tank established to suggest government about remedial measures in the changing economic scenario.

This representation regarding the  Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 is being made in sharp objection to the same .

Introduction of such a bill is not less than a gross misappropriation of assets of the depositors and betrayal of their trust. But it is also a gross violation of the Banking Act says Mr.Vijay Kalantri, President, All India Association of Industries

It is being observed that there has been an introduction of such illogical bills at intervals of time  which are scheduled to make operating conditions more cumbersome  and difficult to manage .

Introduction of such bills which have severe impact on economy have become a habit for  reasons unknown.

Is the Government trying to facilitate the economy or make it drastically complex with introduction of such Bills?

The Government is proposing a Bill by which if the bank is having financial difficulties then they can ask depositors to take a hit.

It’s a good initiative by the government that it plans to recover the sinking banks however recovery cannot be at the cost of the depositors money .

If the government earnestly plans to recover the capital of the sinking banks  then Active Recovery  needs to be the strategy.

Instead of labeling the business as a defaulters  due to default in debt repayment, the Banks needs to employ active restructuring strategies . An active ALM management needs to be employed while managing the bank’s assets. 

The banking system in India itself is congested due to their redundant and regressive policies. It has been observed that most of the times bank’s capital gets arrested in SLR, CLR etc requirements with atleast a fortnightly change in RBI circulars which mandate such a requirement leading to bank strategy which is rendered unstable for deployment of funds for making the required profits to cover losses due to notional loan defaults.

The recent IBC Act made for banking recovery has made no positive impact in recovery of the lost funds either due to Industrial sickness or Wilful Defaults. Infact it has invigorated the inability of the banks to recover their funds through the IBC route. 

Mainly , due to the length of time taken to settle such cases of default through the NCLT .

The inefficiency of the CoC is responsible to reach a solution to recover the appropriate funds . The situation further aggravates when officers constituting the CoC give biased decisions towards haircuts to recover their outstanding from the buyers at lower cost encouraging losses above 50% of the amount. Leading the entire IBC process unviable.

Further harassment of the Entrepreneurs through the IBC  leads closure of financing doors to entrepreneurs by other sources of finance.

The Banking system itself needs “Minimum Government and Maximum Governance “ and a free hand to actively manage their profits and make a good for the loss.

It is an open fact that loans provided to industry are liable for default owing to systemic changes in world economy . Thus the same cannot be avoided. Hence, the Indian banking system needs to learn how to get out of the vicious cycle of such defaults and thus need to employ professional corporate finance and treasury managers with mandatory CFA nad FRM qualifications with ample freedom to manage the banking portfolio.

This Bill introduces the provision for a “bail-in”, whose purpose is to provide capital to absorb the losses of a bank and ensure its survival. Here, survival does not mean safety of depositors’ money, but restoration of capital of the bank. 

The bail-in empowers the bank to cancel a liability owed by the bank or change the form of an existing liability to another security.


Thus, it’s  virtually stupid step to recover the loss of bank money through the FRDI route. Trust in Banking Industry would be decimated. People would gradually close all their bank accounts and keep their cash under the bed in such circumstances. 

In a nut-shell the FRDI proposes to shift the responsibility of rescuing the, “sinking banks” from the Govt. to the Suppliers & Depositors of the Bank. 

The introduction of FRDI will be like stealing the pockets of depositors by the banks who in turn have let their pockets stolen due to inefficiency of the banking system.

The introduction of regressive laws without the outage of redundant laws since 2014 and a few years before has led to heightened corruption in the economy which was set to be lowered as per the election agenda.

There has been no monitor on the Corruption level in the Indian economy. Whatever news laws that are being introduced related to the economy infact fuel corruption instead of depleting the same and criminalize businessmen.

At the same time, the introduced laws have been done so haphazardly without suiting the Indian business and economic diaspora. And at the same time are regressive in nature and most importantly deviating from the very objective they were aimed for. The best example of the same is the IBC which has become a recovery at discount Act than Resolution Act.

The redundancies in the Companies Act have become demonic to the working of the businesses rather than being facilitative.

Thus Mr.Kalantri, earnestly suggest that while making such Draft Bills set to become future Acts the same should be made in active consultation with the Industry Representatives . 

We have observed that the Government seeks consultations from foreign consultants who advise them with prior prejudice and selfish intent.