Bill to deal with crisis in banks, insurers cleared

The Bill when enacted will pave the way for setting up of the Resolution Corporation

A proposal to introduce a Bill in Parliament for setting up a Resolution Corporation to deal with bankruptcy in banks, insurance companies and financial entities received Cabinet go-ahead on Wednesday.

The Financial Resolution and Deposit Insurance Bill, 2017, which aims to instil discipline in financial service providers in the event of a financial crisis by limiting the use of public money to bail out distressed entities, was approved by the Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday, an official statement said.

The proposed Bill will provide for a comprehensive resolution framework to handle any bankruptcy situation in banks, insurers and financial sector entities.

According to the statement, the Bill when enacted will pave the way for setting up of the Resolution Corporation.

It would also lead to repeal or amendment of resolution-related provisions in sectoral Acts as listed in Schedules of the Bill.

"It will also result in the repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, to transfer the deposit insurance powers and responsibilities to the Resolution Corporation," it said.

The Resolution Corporation would ensure the stability and resilience of the financial system, protecting the consumers of covered obligations up to a reasonable limit and public funds to the extent possible.

The government has recently enacted the Insolvency and Bankruptcy Code, 2016, for the insolvency resolution of non-financial entities.

The proposed Bill complements the Code by providing a resolution framework for the financial sector. Once implemented, this Bill together with the Code will provide a comprehensive resolution framework for the economy.

It seeks to give comfort to consumers of financial service providers during any financial distress.

It would help in maintaining financial stability in the economy by ensuring adequate preventive measures while at the same time providing necessary instruments for dealing with a post-crisis situation.

The Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a number of retail depositors. Further, this Bill seeks to cut down the time and costs involved in resolving the problem of the distressed entities.

Photograph: Jayanta Dey/Reuters