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Things to Know About the Financial Resolution and Deposit Insurance Bill, 2017
July 31, 2017
The Union Cabinet has approved the proposal for introducing the Financial Resolution and Deposit Insurance Bill, 2017. This Bill is expected to make bankruptcy proceedings in banks, financial institutions, and insurance companies easier through a resolution corporation. It will also complement the current Insolvency and Bankruptcy Code, 2016 that was enacted last year for the resolution of insolvency cases in non-financial entities.
The following are some of the important things to know about the resolution regime of the Financial Resolution and Deposit Insurance Bill, 2017:
Impact on Financial Institutions
The resolution regime is a comprehensive framework to handle a failing bank or another financial institution in a way that prevents it from collapsing. In other words- it’s an insolvency system for the financial institutions, just like the Insolvency and Bankruptcy Code, 2016 is for the non-financial institutions.
Significance of the Resolution Regime
When the first major crisis hit the Indian economy in 2007 due to failing banks, things got out of hand. It made the central banks to take the matter into serious consideration and think of ways to stabilize the system. This led to the need of a comprehensive system that can handle such problems.
If the Financial Resolution and Deposit Insurance Bill is implemented, the government will establish a resolution corporation that will handle the insolvency cases of the financial institutions. An interesting thing to note here is that the resolution corporation will also have the responsibilities covering deposit insurance, which so far was only handled by the Deposit Insurance Corporation of India.
