Union Cabinet approves Proposal to introduce the Financial Resolution and Deposit Insurance Bill 2017

June 14, 2017

The Union Cabinet has approved the proposal to introduce a Financial Resolution and Deposit Insurance Bill, 2017 which will provide a comprehensive resolution framework for financial sector entities to deal with bankruptcy situation in banks, insurance companies, and other entities.

Salient Highlights

The bill will pave way for the establishment of Resolution Corporation. The Resolution Corporation would be mandated to protect the stability and resilience of the financial system; protecting public funds; protecting the consumers of covered obligations up to a reasonable limit.
Once enacted, the Financial Resolution and Deposit Insurance, Bill 2017 will result in repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and repeal/amendment of other resolution related provisions in sectoral acts. With the repeal of Deposit Insurance and Credit Guarantee Corporation Act, 1961, the deposit insurance powers and responsibilities will be transferred to the proposed Resolution Corporation.
The new bill will complement the Insolvency and Bankruptcy Code, 2016 by providing a comprehensive resolution framework for the financial sector. The Insolvency and Bankruptcy Code, 2016 was enacted recently to deal with the insolvency of non- financial entities.
The bill envisages to inculcate discipline among financial service providers in the event of financial crisis. It is expected to maintain financial stability in the economy by limiting the use of public money to bail out distressed entities. It will put in place adequate preventive measures and at the same time proposes to provide the necessary instruments for dealing with an event of financial crisis
The bill is proposed to be enacted to strengthen and streamline the current framework of deposit insurance and to decrease the time and costs involved in resolving distressed financial entities.