 Hello, and welcome to NewsClick. As you all know, few months ago, the union cabinet has cleared what is called the Financial Resolution and Deposit Insurance Bill, in short FRDI Bill. So as the news reports say, the FRDI Bill has a lot of implications for the banking sector and also the depositors. To speak about it, we have with us Mr. Thomas Franco, the General Secretary of IBOC, all India Bank Officers' Confrontation. Hello, Mr. Franco. Welcome to NewsClick. Thank you. As we have been speaking, the government is going to, at least planning to pass the FRDI Bill in the coming Parliament session. Can you tell us what are the implications for depositors because of this bill? First of all, the bill has been introduced in the Parliament on the last day and it is referred to a joint parliamentary committee. And as for information and even statements on the press that it is likely to be passed in the next session of the Parliament, which I consider will be very difficult because they have not heard the stakeholders as one of the stakeholders. I have also asked for making a presentation and now I will be appearing before the joint parliamentary committee on 6th of December. But the implications of the bill, there are a lot many things which will take us to explain. But there are two major classes which are very dangerous, which I would like to share. First thing is that they are bringing in a new concept called bail-in. Here in the financial sector, there is a bail-out which we have heard about. For example, in the 2008 crisis, US financial crisis, the US Treasury invested a lot of money on the banks so that there is no run on the bank and the bank can continue to do the business. That was called a bail-out. Within our country, we have not had any such run on the bank after nationalization. There are one or two times when there has been a crisis in some particular bank, like it happened with the Global Trust Bank. Another bank, Oriental Bank of Commerce was asked to take over and the customers did not lose anything. Today in our country, the customers have so much of faith that whatever money I am putting in the bank, it is safe. I will get it back when I need. In spite of increasing non-performing assets, in spite of many banks running on a loss, nobody has bothered that my faucet is in danger that it will not be paid back to me. Now in this bail-in concept, instead of the government bailing out a bank, the customer has to take care of the bank. That is what they call it as bail-in. Within the deposit which is available within the bank, the certain portion of the deposit will be appropriated for the bank to take care of its losses, which means that a defaulter who has not repaid the money, he is bailed out by this poor depositor. Now yesterday, the finance minister has made a statement that there are occasions that there is collusion between bankers and the defaulters. Why he, being the highest authority, is not taking action against this defaulter or the colluder? Instead of that, they are bringing this bail-in concept where suppose you have one lakh deposit in the bank, the new authority which is going to be created called the financial resolution authority, that authority will decide how much money can be paid back to you. Out of that one lakh, maybe you will be allowed to tape quack only 10,000 rupees for the time being. It is an example. The rest of the money, they will convert it into an equity. Though you do not want any equity, you want your deposit when you want back, but that will be converted into an equity. That means that will be paid back only when the resolution authority feels that now his condition has moved to a better state and the depositor can be paid back this money. This is the dangerous class which they are bringing. India is a savings-based economy. Unlike U.S. or Japan, where people are not depositing money for gaining some interest, here the maximum deposit is from the household deposit, small deposit. They want some return and they want the money back when they want. If that faith is going to be lost, it is going to create a system that any time there can be a run on the bank. The bank need not do anything bad. If there is a rumor spread out that such and such bank is not doing well, so people will start all withdrawing the money because before these people do something and put a hold on my deposit, let me take it back. After the U.S. financial crisis, it happened within this country in case of ICAC Bank. People were withdrawing all the money from the ATMs or going to the bank and withdrawing from ICAC Francis and the government confidentially requested State Bank of India to come to the rescue because what they wanted was liquid cash. So State Bank started giving liquid cash to ICAC so that they kept on giving to create that faith in the people that there is nothing to be worried, your money is safe, you can take it back and after some time normalcy was restored. Now we all know that many of the banks are running on a loss, the stand around is not happening, real and fear recovery is not happening. In the case of insolvency and bankruptcy also it is not being helping the banking system, it is helping more the defaulter. So it seems so straight forward that the results of FRDA are going to be the opposite that they are actually going to encourage bank runs and a total collapse of banking sector. Then what is the interest of the government in doing this? After the 2008 crisis US felt that they cannot keep on rescuing the banks because there most of the banks are in the private sector, not in the public sector. So they decided that we should create another mechanism. So G7 countries together they formed a board called the financial stability board. Later on they have made all the G20 countries to be part of it and India's one among the G20 countries. The financial stability board created the draft for all these bills. They brought a note called key attributes for resolution. The exact weddings of the key attribute is copied in our FRDA bill. So there only they brought in this concept that instead of government going to the rescue that the depositor come to the rescue. That may suit US. It cannot suit our country because our country it is totally different. The domination of public sector bank is more even now 70 to 74 percent of the total deposits and advances are handled by the public sector. So we are not doing something on our own because the financial stability board has recommended one by one countries are forcing the bill. Now what has happened I think two years back in the case of Cyprus. They passed this bill. There was a run on a particular bank. The depositors got back only 47.5 percent of the deposit. The rest of the money was gone completely. So our people have not gone deep into this and just copying a bill which was drafted by the financial stability board. They have brought it and it requires a wider debate and debate among especially the stakeholder who is the depositor. Today that is not taking place. So this is going to be very dangerous. And another major class which they are bringing in related to the cooperative sector. In our country the cooperative banks are catering to the small people, more generalised people, farmers, weaker section especially in the rural areas. Their outreach is very high. More than 10 crore population these cooperative banks are covering. Many of these cooperative banks may not be financially sound but they are created for a particular purpose of helping the weaker section of this. So often on what happens is that whenever there is some problem maybe some money did not come back or there is a crop crisis flood or drought. The state government invests money at times they write off some loans or a portion of the loan and help the bank to further keep lending. Navad gives them guidance. Navad gives them refinance and they are catering to the people well. There are only very few cases where the cooperative banks themselves where in the verge of collapse and the DICGC has come to help those depositors. At least 95% of the cooperative banks they are doing well but now after this resolution authority is created from day one they come under the control of this financial resolution authority. The moment somebody says that say Maharashtra cooperative bank it is not doing well they are having some crisis. Immediately the resolution authority will take over that bank. It can merge banks, close banks, liquidate banks, absolute powers. So the cooperative system is going to collapse if this resolution authority is going to handle them and that is infringing on the rights of the states. More than this there are various things like you are giving absolute power to an authority. You are taking away the powers of the Reserve Bank of India. You are taking away the powers of the IRDA. You are taking away the powers of the individual banks. Individual banks have powerful boards which can take care of themselves and there is already a mechanism. There is a reporting system. There is a cash reserve ratio. There is an SLR based on which there is a control mechanism is there. Everything if one small authority is going to take over which will be appointed by the Finance Ministry, controlled by the Finance Ministry. All people in that board majority of them will be appointed by the Finance Ministry. Only thing RBI one representative will be there. IRDA one representative will be there. Few representatives but majority will be the Finance Ministry's nominees. They can play havoc with the system and this I see is a step towards privatization. Nothing else. Say that these banks are not doing well with, they want to extract everything. Now immediately they may not privatize because they want to extract every drop of blood in the public finance system. They want to do Jandan. They want to do Mudra. They want to do all the pension eugenics. For all that they want the public sector. They did demonetization using the bankers which did not yield any results. We are still searching where is that black money. But after that they are going to say that these banks are not doing well. They have not been able to recover the money. We created the insolvency and bankruptcy code. We brought in the NCLT in spite of that recovery is not taking place. So let the Resolution Authority take care. The Resolution Authority will use its powers, the absolute powers and say that okay State Bank of India is not doing well. Let us hand over to Ambani's or Adhani's or somebody else. The same way every bank they can hand over to the private sector and even parliament will only having a reporting mechanism. At present for everything they have to at least if the dilution of share is going to take place below 51% you have to come to the parliament. Now there will not be any requirement. Resolution Authority will have all the powers. So this backdoor way of privatization is the ultimate aim of this. Let us hope that the government will come to its senses and put this bill on the burner. The common man, the depositors irrespective of their jobs. Everyone in the society who have relationship with the bank they will have to think, they will have to act, they will have to question, raise their voices. Then only we can put an end to this. Thank you Mr. Franco. Thank you very much. Thank you for watching NewsClick.