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In a bid to protect clients of financial service providers in financial distress, the Union Cabinet on Wednesday approved the introduction of a bill that will lay out a resolution framework for financial sector entities in dealing with bankruptcy.
"The Cabinet, chaired by Prime Minister Narendra Modi, approved the proposal to introduce the Financial Resolution and Deposit Insurance Bill, 2017. The bill will provide for a comprehensive resolution framework for specified financial sector entities to deal with bankruptcy," a Finance Ministry statement here said.
"The bill complements the Insolvency and Bankruptcy Code, 2016, by providing a resolution framework for the financial sector. Once implemented, this bill, along with the Code, will provide a comprehensive resolution framework for the economy," it said.
The bill aims to inculcate discipline among financial service providers in the event of financial crises by limiting the use of public money to bail out distressed entities, the statement added.
"It will help maintain financial stability in the economy by ensuring adequate preventive measures, while at the same time providing the necessary instruments for dealing with crisis. The bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors," the statement said.
Further, this bill seeks to decrease the time and costs involved in resolving distressed financial entities.
"The Financial Resolution and Deposit Insurance Bill, 2017, when enacted, will pave the way for setting up of the Resolution Corporation. It will lead to repeal or amendment of resolution-related provisions in sectoral Acts as listed in the Schedules of the bill. It will also lead to repeal of 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 will protect the stability and resilience of the financial system, protecting the consumers of covered obligations up to a reasonable limit and protecting public funds, to the extent possible.
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