The Financial Resolution and Deposit Insurance (FRDI) bill which is to be presented to the Winter Session of Parliament in continuation of the super-imposition of Demonetization and GST is going to be the third successive corporate weapon in the armory of Modinomics against the Indian people. If passed as scheduled, it will put the whole of people’s bank deposits at risk. In the words of Arun Jaitley, the finance minister, the FRDI Bill will “provide a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance firms and financial sector entities.” Central to this cunning move is a “bail-in” clause by which the depositors’ money will be used in the so called “specialized resolution mechanism.” A bail-in is the art of rescuing a bank or financial institution on the brink of failure by forcing its depositors bear the whole burden. Until now banks in India have been pursuing the policy of “bail-outs”, that is, saving the corporate financiers like Ambanis, Adanis, Essars, etc., by writing off their loans to banks. On the contrary, a bail-in is the reverse of bail-out in which the banks save themselves by grabbing the hard-earned deposits of customers which will further enable the banks to carry on the process of writing off corporate debts ad infinitum and adding to the coffers of the billionaires. Simply speaking, with the forcible takeover of people’s money by corporate-controlled banks, bail-in is an indirect way of uninterrupted financing of the corporate thugs whose debts to banks euphemistically called “non-performing assets” (NPAs) have reached around 15 lakh crore as of now. Ironically, the news on this bail-in bomb began exactly on November 8, 2017, the first anniversary of Modi’s carpet bombing on Indian people started since November 8, 2016 in the form of Demonetization.
As per the bail-in clause in the FRDI Bill, banks which are at risk due to the periodic repudiation of huge amounts of corporate loans and utter mismanagement can change the structure of their liabilities and rescue themselves by forcibly taking the cash deposited by people. In exchange of cash taken, banks may issue bonds and shares in return which will be locked for years and can therefore be redeemed only after a fixed period of time. Bail-in is an arch-reactionary neoliberal program which the IMF started advocating since the global collapse of banking system in the context of the world-wide ballooning of the speculative bubble and economic slow-down that started in 2007-08 with its origins in the US “sub-prime crisis” and then in the “sovereign debt crisis” of European Union (EU). Since 2008, imperialist powers such as US, EU, China and Japan in the name of “quantitative easing” etc., have pumped trillions worth of public money to banks and finance corporations for bailing them out. More or less similar methods were pursued by other countries also according to their concrete situations.
For instance, in 2011, Denmark felt the severity of this banking and financial crisis in its acute form. The government responded to the consequent financial breakdown through a “multi-phased bank package program” including a legal framework for various safety nets to ordinary customers. Among other things, the so called “bail-in” was an item that first appeared then by which the burden of adjustment was put primarily on the shoulders of big debt holders. This got wide attention in several European countries. Following this, the IMF reformulated the concept by dragging all customers in to the bail-in program along with appropriate bail-out programs for appeasing corporate financiers. It was since 2012 that IMF documents formally adopted the bail-in as a policy.
Meanwhile, Cyprus, a small country situated in the eastern coast of Mediterranean that witnessed a total breakdown of its banking system in 2013 on account of neoliberal policies became the first testing ground for the IMF’s bail-in program. IMF intervened in the opportune time and as part of its “structural adjustment program”, banks were instructed to deny peoples’ access to their hard-earned life-savings deposited in banks and at the behest of IMF the Cyprus government denied guarantee and refused to step in even as resorting to usual methods of bail-out for corporate financiers. What followed was a ‘legal theft’ of people’s savings such that more than 60 percent of the depositors’ money went into the coffers of banks and corporate financiers, and the whole program was a disaster for the country. While the bail-in Denmark was not a super-imposed one and was guided by bourgeois national interests with a coherent legal framework that kept an appropriate balance between the rights of depositors and public interest, the IMF’s neoliberal advocacy “from a bail-out to bail-in” as tested in Cyprus turned out to be an attack on the people.
In this context, Modi regime’s enchantment with the IMF-sponsored FRDI Bill including its notorious bail-in clause that comes after the carpet bombings in the form of demonetization and GST (which also had been designed and super-imposed from imperialist centres) needs close scrutiny. Responses from social media as well as from all concerned and well-meaning sections to Jaitley’s tweet on bail-in that “the government is to fully protect the interest of the financial institutions and depositors” indicate that there are few takers for the regime’s explanations on bail-in and that people have little faith in them. It is like saying that one can simultaneously serve the Devil and God. How is it possible to appease corporate speculators and at the same time look after the interests of common people? Therefore, what people need is an unconditional rejection of the “The Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 that is pending before the Joint Parliamentary Standing Committee with immediate effect.
No doubt, the FRDI Bill with its draconian bail-in provision is a well thought-out strategy on the part of Modi’s neoliberal advisors. The process did start in June 2017 (the Union Cabinet approved the Bill on June 14, 2017) itself, much before the convening of the midnight session of the parliament on June 30 for finalizing the GST that transferred the country’s economic power to the corporate fascist alliance at the centre. In continuation of Demonetization and GST, the FRDI Bill was intended to bestow power to the ‘failing’ but corporate controlled banks and financial institutions in both public and private sectors to use depositors’ money thereby legally eliminating banks’ liability of paying their depositors altogether. The Bill also contains provision for abolishing the “depositor-friendly” 1961 Deposit Insurance and Credit Guarantee Corporation (DICGC) Act that insured up to one lakh rupees of the money deposited in a bank if it were to fail. According to the DICGC Act, the benefit of deposit insurance protection is made available to the depositors or customers of banks free of cost as the insurance premium is paid by the insured banks themselves. The Corporation has the power to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. The Corporation may restore the registration of the bank, which has been de-registered for non-payment of premium, if the concerned bank makes a request in this behalf and pays all the amounts due by way of premium from the date of default together with interest.
On the contrary, the FRDI Bill proposes the creation of a “rescuing body” known as Financial Resolution Corporation which is empowered to deal with the depositors’ money in case the bank collapses or sinks. Under Section 52 of the Bill, the Resolution Corporation can cancel even the Rs 1 lakh insurance that people are getting under the current law which will enable a bank even to declare that it does not owe depositors any money at all. Further, the same Section extends powers to the “corporate-friendly” Resolution Corporation to modify a bank’s liability to its depositors by allowing the bank to arbitrarily keep the money (which, of course, will always be available for corporate stake-holders) in a locked in period without even consulting the depositors. The bank may turn peoples’ savings intended for day-to-day transactions into a fixed deposit without seeking their consent and that too at a lower interest rate. The Bill also contains provisions that fully exempt the bank from fulfilling its promises to depositors leading to the latter permanently losing their savings. That is, the Resolution Corporation mentioned in the Bill is to monitor and resolve the risk faced by banks and financial firms arising from speculation, writing off of corporate loans and mismanagement and not intended for ordinary depositors who will be placed in very unfavourable positions in case a bank is declared as sinking. Above all, the Bill specifies various tools to resolve a failing bank or financial firm which include transferring its assets and liabilities, merging it with another bank or firm or even liquidating it, if it is unviable to internally restructure its debt by grabbing the depositors’ money. The Financial Resolution Corporation may resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.
Obviously, this bail-in move now proposed by Modi government is not an isolated one but should be understood as part of its broader corporatization agenda. In the context of the global integration of financial markets and the ensuing large-scale entry of foreign and domestic speculators in to the banking sector, imperialist centres have been eager to avoid a recurrence of the 2008 type financial meltdown in any part of the globe as it will be detrimental to their global prospects. At the same time corporate centres want to eliminate even the diluted depositor-friendly
protective provisions which are still in the Indian banking system. An ingenious move is also in full swing to make bank deposits less attractive and drive people’s hard-earned savings to highly speculative stock markets and mutual funds controlled by global speculative financiers. However, as widespread criticism and fears over the insecurity of bank deposits have emerged from various quarters, absurd interpretation that the “bail-in” seeks to hand over statutory power to resolution authority to convert creditors (depositors) of banks in to shareholders has also started coming out from neoliberal centres for public consumption.
Meanwhile, as already noted, imperialist countries have established some ‘resolution mechanism’ (for example, quantitative easing in US) for resolving the problem of failing banks owned by monopoly capitalists in consonance with the specificities of corporate-state nexus in each country. Accordingly, bail-in has been adopted as the standard procedure by the Financial Stability Board constituted by the G20. The European Union also has issued a directive proposing a structure for member countries to follow while framing their respective bail-in packages. Though very rarely used and intended as the last resort, the EU members including Germany have provided for bail-in under their laws. It is one of the latest neoliberal weapons invented by corporate capital to put the burden of imperialist crisis arising from unhindered speculation on the shoulders of workers and all the oppressed. Interestingly, the Modi government in India is adopting the bail-in provision after dragging millions of poor people towards the formal banking system through such initiatives as Jan Dhan Yojana thereby ensuring a more broad-based corporate squeeze of the masses. If the Bill becomes law, then the Financial Resolution Corporation envisaged in it, like the GST Council, will be vested with authoritarian powers for taking pro-corporate decisions on banks including even cooperative banks in which neither the Reserve Bank nor even the parliament can intervene. And appropriate changes will be brought in the various laws pertaining to banking and insurance in the country for the smooth functioning of the Resolution Corporation.
Everybody knows that the entire Indian banking sector is going through a severe crisis due to the so called NPAs accumulated by it, especially by the public sector banks. Two years back, K C Chakrabarty, former RBI Deputy Governor has unequivocally pointed out that the NPAs were around Rs 10 lakh crore. But now independent estimates put the figure at around Rs. 15 lakh crore. According to a Report prepared by Credit Suisse, 90 percent of these NPAs are due to the top ten defaulting corporate companies, viz., Reliance Group, Adani Group, Essar Group, Vedanta Group, GVK Group, Videocon Group, Lanco Group, GMR Group, JSW Group, and Jaypee Group. Compared with these big sharks closely integrated with ruling regime, notorious Mallya is only a small guy. The Modi government is not ready even to disclose the names of these corporate thugs and no effort is there to confiscate the public money from these companies even as their wealth accumulation is galloping. Various schemes announced by the RBI in the name of recovering these debts due to banks such as Strategic Debt Restructuring (SDR), Sustainable Structuring of Stressed Assets (S4A), Corporate Debt Restructuring (CDR), Insolvency and Bankruptcy Code (IBC), Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), Recovery of Debts due to Banks and Financial Institutions (RDDBFI) etc., have been effectively directed against poor and marginal peasants while nothing has been done against the corporate thugs. And every year successive governments are writing off corporate loans worth millions. Consequently, the public sector banks are in crisis. It is in this context that, the FRDI Bill with its bail-in provision is brought forward by the corporate-fascist regime at the Centre to tide over the situation by shifting the whole burden of adjustment to the shoulders of common people. It is the solemn duty of all democratic and progressive forces in the country to resist this anti-people and anti-national move tooth and nail and defeat it at the earliest.
P J James