Cabinet set to introduce bankruptcy bill for banks
FINANCIAL WOES Bill to work on resolution for bankruptcies of banks, NBFCs
In line with the bankruptcy code for non-financial firms, the Cabinet on Wednesday approved the proposal to introduce a Financial Resolution and Deposit Insurance Bill, 2017 that will provide for a comprehensive resolution framework to deal with bankruptcies of banks, and insurance and financial services companies.
Finance minister Arun Jaitley, in his 2016-17 budget speech had said a comprehensive code on resolution of insolvency cases in financial firms would be introduced as a bill in Parliament soon.
“A systemic vacuum exists with regard to bankruptcy situations in financial firms. This code will provide a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance firms and financial sector entities. This code, together with the Insolvency and Bankruptcy Code 2015, when enacted, will provide a comprehensive resolution mechanism for our economy,” he had said.
Following the announcement, on March 15 last year, the ministry set up a panel under additional secretary Ajay Tyagi, now the head of stock market regulator Sebi to draft and submit the bill. The finance ministry released the draft bill in September last year.
The Financial Resolution and Deposit Insurance Bill, 2017, when enacted, will pave the way for setting up of the Resolution Corporation that will protect the stability and resilience of the financial system; providing deposit insurance to consumers of certain categories of financial services up to a reasonable limit; monitoring Systemically Important Financial Institutions (SIFI); and protecting public funds, to the extent possible.
The government recently enacted the Insolvency and Bankruptcy Code, 2016 for nonfinancial 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,” a government statement said.
The Financial Resolution and Deposit Insurance Bill, 2017 seeks to give comfort to the consumers of financial service providers in financial distress.
“It also 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 said.
It would help in maintaining financial stability in the economy by ensuring adequate preventive measures, while at the same time providing the necessary instruments for dealing with an event of crisis.
“The Bill aims to strengthen and streamline the current framework of deposit insurance for the benefit of a large number of retail depositors. Further, this Bill seeks to decrease the time and costs involved in resolving distressed financial entities,” the government said.