Financial Resolution and Deposit Insurance Bill, 2017

The Union Cabinet has approved a proposal to introduce the Financial Resolution and Deposit Insurance Bill, 2017.

The Bill will pave the way to set up a Resolution Corporation to deal with bankruptcy in banks, insurance companies and financial entities.

The decision to approve the Financial Resolution and Deposit Insurance Bill, 2017, comes a year after the government enacted the Insolvency and Bankruptcy Code, 2016, for the resolution of insolvency in non-financial entities.

Objectives
  • To protect the stability and resilience of the financial system
  • To protect public funds
  • To keep obligations of consumers up to a reasonable limit
Main provisions
  • The Bill seeks to give comfort to consumers of financial service providers during financial distress.
  • It also aims to instill discipline among financial service providers in the event of a financial crisis by limiting the use of public money to bail out distressed entities.
  • The Bill will also lead to repeal or amendment of resolution-related provisions in sectoral Acts as listed in Schedules of the Bill.
Likely benefits

The proposed law can benefit a large number of retail depositors because the Bill not only aims to strengthen and streamline the current framework of deposit insurance, but also seeks to decrease the time and costs involved in resolving distressed financial entities.

This will help in maintaining financial stability in the economy by ensuring adequate preventive measures, and at the same time provide necessary instruments to deal with an event of crisis.

The decision to approve the Financial Resolution and Deposit Insurance Bill, 2017, comes a year after the government enacted the Insolvency and Bankruptcy Code, 2016, for the resolution of insolvency in 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.