According to the report, out of the 594 billion fund, around 77 percent or Rs 460 billion was invested by the ESIC in PSBs’ fixed deposits till March 31, 2017.
The Union Labour and Employment Ministry has raised concerns about the ‘bail-in’ clause in the Financial Resolution and Deposit Insurance (FRDI) Bill stating that the move may impact medical benefits under ESIC.
“A large portion of ESIC (Employees’ State Insurance Corporation) deposits is kept as fixed deposits in PSBs. This is money collected from employers and employees for extending medical benefits to workers that will come under threat. A bail-in clause is different than bail-out where the government steps in to rescue failing financial institutions. The former is a hands-off approach,” a senior Labour and Employment Ministry official told the paper.
According to the report, out of the 594 billion fund, around 77 percent or Rs 460 billion was invested by the ESIC in PSBs’ fixed deposits till March 31, 2017. The remaining fund was invested as special deposits with the central government in 2016-17.
The ESIC is mandated to invest 75 percent of its funds in PSBs. “This is workers’ money, which should be protected,” the official said.
If the move comes into effect, these money will not be easily accessible to workers.
“The ESIC is supposed to look after the interests of the workers, who are its contributors. If a portion of the ESIC’s corpus is converted into equity of banks through the bail-in clause, it will become difficult to extend medical benefits committed to stakeholders as the money will become inaccessible,” a senior ESIC official said.
Nearly 4.75 percent of a worker’s monthly salary goes towards ESI as the employer’s contribution, 1.75 percent of the income is the employee’s share. The employees insurance scheme applies to all factories and establishments employing at least 10 workers. Around 29.3 million workers were insured under the ESI scheme till March 31, 2017.
The central trade unions have been opposing the bail-in clause too. “We have demanded the finance ministry withdraw clause 52 (related to bail-in)… This should be only applicable to private sector banks. Workers stand a risk of losing their hard-earned money because of this proposal. We have strongly opposed it,” Rashtriya Swayamsevak Sangh-affiliated Bharatiya Mazdoor Sangh President C K Saji Narayanan told the paper.
Here is what section 52 – the section of the FRDI bill that deals with ‘bail-in’, has to say:
“…the Corporation may, in consultation with the appropriate regulator, if it is satisfied that it is necessary to bail-in a specified service provider to absorb the losses incurred, or reasonably expected to be incurred, by the specified service provider and to provide a measure of capital so as to enable it to carry on business for a reasonable period and maintain market confidence, take an action under this section by a bail-in instrument or a scheme to be made under section 48”.
Section 48 details the method and time of resolution and provides for all possible means to ensuring that the depositor’s money is safe. It calls for transferring the whole or part of the assets and liabilities of a specified service provider, or creating a bridge service provider, or merger or amalgamation of the specified service provider, as well as the acquisition of the specified service provider, in whole or in part.
In other words, the bill talks of ensuring that the depositor is insured and protected by the relevant regulator in all possible ways, as is the case even now. Although FRDI details the processes for how the depositors’ money is protected, what is not spelled out yet is the cover provided on the loss of one’s deposit and interest.
The ministry has raised these concerns before a joint parliamentary committee of both the Houses, which is examining the Bill and holding discussions with stakeholders and the Finance Ministry.
The panel, headed by Rajya Sabha Member Bhupender Yadav, is likely present its report to Parliament on the last day of the upcoming Budget session, said the report.
Union Finance Minister Arun Jaitley had introduced the FRDI Bill in August last year in the Lok Sabha. The Bill establishes a Resolution Corporation which will monitor the financial firms such as banks, insurance companies, stock exchanges, and depositories and pre-empt their failure, and resolve or liquidate them in case of failure.